I've been thinking about the coexistence of Bitcoins with current money, USD in my case.  Suppose that paychecks, taxes, loans are all still using USD.  What effect does Bitcoins have on US monetary policy.

Scenario 1 - Bitcoin is just used to facilitate transferring USD.
    Person A converts dollars to Bitcoins and sends them to person B.
    Person B takes the Bitcoins and converts them to dollars.
    Assuming there is no transaction costs the velocity of USD does not change and there is no effect on monetary policy.
Scenario 2 - Bitcoins replace USD transactions.
    Person A has Bitcoins from mining or some previous transaction and sends them to person B.
    Person B receives the Bitcoins and saves them for later transactions.
    Think about what has happened.  A transaction that had previously been done with USD is now done with Bitcoins.  This reduces the velocity of USD, similar to the effect of a population decrease.  As the use of Bitcoins increases, the Fed has to slow the rate of adding money to the economy.

What if people save money with Bitcoins instead of USD.  USD is taken out of the bank and used to purchase Bitcoins.  Again, that increases the money supply and the Fed has to pull back.

What if countries decide that Bitcoins are more profitable than US Treasury Notes?  Suppose China starts buying Bitcoins.  Interest rates would go up right?

Why will people use Bitcoins?
    Drugs - Silk Road.
    Porn - so the wife does not see it on the credit card bill.  Porn industry was very early to sell on the internet and adopt Blu-Ray.
    Internet shopping - Buying stuff from shady sites that you don't want to give your credit card to.  See porn above ... or Sony.
    Buying software from around the world.  Independent software developers can accept Bitcoins.  Would not have worry about working with credit card companies or exchange rates.