Theoretical Challenges of Cryptocurrency to Central Bank Monetary Supply Management

DOI: https://doi.org/10.62517/jel.202414318

Author(s)

Hou Zeyu*

Affiliation(s)

School of Economics and Management, Yan’an University, Yan’an, Shaanxi, China *Corresponding Author

Abstract

This paper explores the theoretical challenges posed by cryptocurrencies to central bank monetary supply management. With the rise of cryptocurrencies like Bitcoin, traditional monetary systems and financial regulatory frameworks face unprecedented disruptions. Through literature review and theoretical analysis, this study systematically examines the fundamental characteristics and operational mechanisms of cryptocurrencies, and their potential impact on monetary policy. The analysis delves into the decentralization of cryptocurrencies and its challenge to the central bank's monopoly on currency issuance. Additionally, it evaluates how the anonymity and cross-border liquidity of cryptocurrencies disrupt monetary policy transmission, particularly in controlling money supply and interest rates. The study also reviews the regulatory policies of various countries and regions, assessing their effectiveness and limitations. The conclusion highlights that cryptocurrency present multifaceted challenges to central bank monetary supply management, affecting the efficacy of monetary policy, financial stability, and the adaptability of regulatory frameworks. To address these challenges, central banks must innovate in policy tools and regulatory measures, and enhance international cooperation to manage cross-border financial risks posed by cryptocurrencies. This research provides a theoretical foundation for understanding the impact of cryptocurrencies on traditional monetary systems and offers valuable insights for policymakers.

Keywords

Cryptocurrency; Central Bank; Monetary Supply Management; Monetary Policy; Financial Regulation

References

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