Central Bank Behaviour Concerning the Level of Bitcoin Regulation as a Policy Variable

Bitcoin gains more and more attention in the general public and is already the most popular virtual currency. At the same time, the acceptance of Bitcoin as a speculative asset and also as a payment vehicle increases. This is an indication that we might now be entering an era of parallel currency sy...

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Bibliographic Details
Published in:Athens Journal of Business & Economics (online) 2015-10, Vol.1 (4), p.273-286
Main Author: Sauer, Beate
Format: Article
Language:English
Subjects:
bitcoin
central bank
network theory
regulation
virtual currency
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Summary:Bitcoin gains more and more attention in the general public and is already the most popular virtual currency. At the same time, the acceptance of Bitcoin as a speculative asset and also as a payment vehicle increases. This is an indication that we might now be entering an era of parallel currency systems. Therefore, one could state that the Bitcoin network and the central banking system could become two rival systems with respect to issuing payment vehicles and providing cross-border payment systems. Our aim is to analyse the central bank incentives for establishing a network model that includes hacking. With our model we are able to explain why central banks have no incentive to advance Bitcoin regulation at the current stage of development, as this would reduce the critical mass of Bitcoin users. Finally, in combination with a central bank loss function, we are able to calculate an optimal level of central regulation.
ISSN:2241-794X
2241-794X
DOI:10.30958/ajbe.1-4-1