Backing a cryptcurrency with fiat money isn't really employing the model of blockchain technology. Namely, blockchain money is by nature decentralised. Some central banks like the Bank of Canada attempted to call their version of cryptocurrency (CAD-coin) as using blockchain technology, but in fact these schemes aren't decentralised at all. It is still one entity controlling the money supply. It seems they are just trying to jump on the crypto bandwagon or trying to co-op the movement. I say good luck with that.

Remember fiat money is simply money by decree (of a government). With bitcoin, there is no authority forcing anyone to use it. With fiat, governments force their subject to settle contracts, pay taxes and receive benefits with only that decreed money. That is, there do not allow a free market (think: competition) in money. Cryptocurrencies can change all of that.

As it stands the volatility as people perceive it lies in the exchange rate of cryptos to existing fiat currencies. In a world of no fiat and many cryptos there would still be volatility and arbitrage opportunities just as there is today in the forex market.

So I wouldn't fear blockchain fiat as I think that is a dead-end for governments, my main concern is that crypto applications aren't yet simplified enough for the common layman. If we make improvements here along with the scaling debate mention earlier, there can be some real opportunity in terms of massive adoption. Time will tell.