What is the impact of digital currencies on the global economy?

Introduction

Digital currencies, including central bank digital currencies (CBDCs) and cryptocurrencies, are transforming the global economy. Their impact spans various aspects, from economic growth and financial stability to monetary policy and international trade. This synthesis explores the key insights from multiple research papers on the impact of digital currencies on the global economy.

Key Insights

Economic Growth and Financial Inclusion
- Digital currencies can enhance economic growth by increasing financial inclusion and reducing transaction costs, which promotes business activities and investments .
- The introduction of digital currencies can lead to a more inclusive economy by attracting unbanked populations into the financial system, thereby reducing the shadow economy and tax crimes .
Impact on Traditional Banking and Financial Stability
- The issuance of CBDCs is not likely to threaten financial stability and may even promote bank lending by increasing competitive pressure and financial inclusion.
- Digital currencies can reduce systemic financial risks by lowering leverage ratios and enhancing the stability of the financial system .
Monetary Policy and Regulation
- Digital currencies will significantly impact the structure and functions of central and commercial banks, as well as national and transnational payment systems, necessitating changes in monetary policy and regulatory frameworks .
- The controlled issuance of digital currencies can help manage inflation and support the effectiveness of monetary policy by providing a high level of control over monetary transactions .
Cross-Border Transactions and International Monetary System
- Digital currencies can make cross-border payments cheaper and quicker, reducing frictions in global capital flows. However, this could also lead to increased capital flow and exchange rate volatility, particularly affecting emerging market economies.
- Despite the potential for digital currencies to facilitate international trade, they are unlikely to significantly alter the dominance of major fiat currencies like the US dollar, which is supported by strong institutional foundations .
Technological and Economic Implications
- The rise of cryptocurrencies like Bitcoin could challenge traditional fiat currencies and introduce new dimensions to global finance, including regulatory challenges and the need for robust financial infrastructure .
- Digital currencies, born from technological advances, do not fundamentally change the nature of credit money but require a balanced approach to ensure stability in both physical and money markets.

Conclusion

Digital currencies are poised to bring about significant changes in the global economy. They promote economic growth and financial inclusion, enhance financial stability, and necessitate changes in monetary policy and regulatory frameworks. While they offer benefits such as reduced transaction costs and improved cross-border payments, they also pose challenges, including potential volatility in capital flows and the need for robust financial infrastructure. Despite these changes, the dominance of major fiat currencies is likely to remain due to their strong institutional foundations.

What is the impact of digital currencies on the global economy?

Summary

Introduction

Key Insights

Conclusion

Sources and full results

A study of the economic impact of central bank digital currency under global competition

China's central bank digital currency (CBDC) can enhance economic growth by 0.15% and reduce systemic financial risk, suggesting China should accelerate research and development.

Digital Currencies and Fintech Innovation Technologies for Economic Growth

Digital currencies and FinTech innovation technologies can boost economic growth by reducing inflation, promoting inclusive growth, and reducing the shadow economy.

Assessing the Impact of Central Bank Digital Currency on Private Banks

A properly designed central bank digital currency does not negatively impact bank lending activity and may even promote it in some circumstances, with competitive pressure leading to higher deposit rates and increased financial inclusion.

The Financial Implications of the Emergence of Digital Currencies under the Development of the Digital Economy

Digital currencies gradually popularize Internet finance, reducing transaction costs and promoting international economic development.

How will digital technologies influence the international monetary system?

Digital technologies like cryptocurrencies and central bank digital currencies will make cross-border payments cheaper and quicker, but may increase capital flow and exchange rate volatility.

THE IMPACT OF DIGITAL CURRENCY ON THE TRANSFORMATION OF MONETARY POLICY

Digital currencies issued by central banks can significantly impact monetary policy, money transmission, and financial stability, potentially improving effectiveness and reducing shadow economy and corruption.

Impact of Bitcoin as a World Currency

Bitcoin's rise as a global currency could disrupt the financial system and potentially replace the US Dollar, with regulation, technology, and economy playing key roles.

Digital Currencies and Relevant Policy Analysis

Digital currencies are not a replacement for credit money, and their impact on the global monetary system and economic patterns requires balanced market rules and a shift to an Earth-based monetary system.

Digital Currencies: Its Features and Macroeconomic Implications

Digital currencies pose a potential risk to monetary and financial stability due to their lack of controls and potential for widespread use as a form of money.

The Financial Crisis and Digital Currencies

Digital currencies, such as Bitcoin, could potentially replace trust in banks and financial institutions, potentially benefiting countries in financial crises.

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