This paper describes the challenges for central banks arising by virtual currencies (VC) like Bitcoin. The paper classifies virtual currencies as a form of private money. It provids an historical outline of the development and adoption of private money. According to the authors of this document virtual currencies could thanks to their techical design overcome certain issues like trust.
Virtual currencies pose challenges to regulators, mainly:
- The use of VCs cannot be restricted completely due to their decentralized and international architecture
- Financial regulatory authorities always lag behind financial innovations