What are "digital" fiat currencies and why are they not digital cash equivalents?
The European Central Bank and the Canadian Central Bank are looking into creating the digital euro and the digital Canadian dollar. There is interest in the rest of the world to do the same. As for what digital fiat would mean is still a bit uncertain but it could mean accounts in central banks for individuals and an electronic payment infrastructure. According to the ECB has published about the digital euro, the aim is to build the digital equivalent of cash to complement it but not replace it.
The landing page had questions and answers to them, one of which was this:
Q: Why would a digital euro not be a crypto-asset?
A: Crypto-assets are fundamentally different from central bank money: their prices are volatile because they lack any intrinsic value and there is no reliable institution backing them. People using a digital euro would have the same level of confidence as with cash, since they are both backed by a central bank, which is something crypto-assets such as stablecoins cannot provide.
This is quite amusing because properly implemented trustless and thus crypto-backed stablecoins tend to be very reliable. The article on the ECB website talks about privacy as a feature of the digital euro (= a digital cash equivalent). It goes without saying that KYC will absolutely be required and the whole system would involve the total censorability and monitorability of transactions. In contrast, trustless stablecoins such as the DAI do use a public ledger but they're pseudonymous and measures like automatic swaps to privacy coins and back can be taken with the right kind of wallet software to ensure the privacy of transactions.
That answer also included the old lack of intrinsic value argument. The only reason fiat currencies have any value whatsoever is that using them as currency has been made the path of least resistance gunpoint. Their ability act as stores of value is questionable at best at least in the long term and is not practically even a very high priority as it perhaps shouldn't be because there exist forms of money that are far superior in that respect.
I wouldn't personally want to use the digital euro instead of physical cash. In my daily life, I pay all my bills using online banking apps and use cash for small transactions simply because I want to support the infrastructure for cash transactions. Physical cash is the only form of money that is both private and uncensorable as well as universally accepted. It is also very easy to stay on top of one's spending in real time when one deals in physical cash.
Is digital fiat bullish for crypto?
I don't think digital fiat currencies are particularly bullish for crypto. They have nothing in common with crypto. Sufficient payment channels for exchanging fiat for cryptocurrencies and back already exist. Digital central bank cash would add nothing of relevance to the crypto space.
I also don't see them as a threat to crypto, either. Although paying with crypto is actually somewhat convenient and safer compared to paying with credit card online because of not needing to give personal identifying data to every merchant one deals with, the main value proposition of Bitcoin is its superiority as a store of value. The other major use cases often involve using a cryptocurrency as a utility coin on some particular public blockchain. Besides, there already are centralized payment solutions that scale very well and that are fast. Cryptocurrencies are not going to compete adequately with those.