Research on Impact of Digital Currency Development on Transmission Mechanism of Monetary Policy

Xi Chen

doi:10.62177/apemr.v3i1.1149

Authors

Xi Chen Fuzhou University of International Studies and Trade

DOI:

https://doi.org/10.62177/apemr.v3i1.1149

Keywords:

Digital Currency, Central Bank Digital Currency, Monetary Policy, Transmission Mechanism

Abstract

Driven by the global wave of financial technology, digital currencies represented by central bank digital currencies are moving from theoretical concepts to practical explorations, indicating a potential paradigm shift in the global monetary system. This shift poses a fundamental challenge to the core of modern macroeconomic regulation. In this context, this study focuses on central bank digital currencies (CBDCs) and systematically deconstructs how they trigger nonlinear changes in the transmission path of monetary policy through five classic channels: interest rates, credit, asset prices, exchange rates, and expectations. This study found that digital currency has profoundly changed the transmission efficiency, boundary of action, and feedback loop of monetary policy through three core mechanisms - reshaping the financial intermediary pattern, creating new policy tool combinations, and constructing high-dimensional real-time data fields. The programmability of CBDC, layered interest rate design, and potential breakthroughs in the lower bound of zero interest rates provide space for monetary policy.

Downloads

Download data is not yet available.

References

Bagis, B. (2022). Digital currencies and monetary policy in the new era. Insight Turkey, 24(3), 189-212. DOI: https://doi.org/10.25253/99.2022243.12

Banerjee, S., & Sinha, M. (2025). The policy endorsement of central bank digital currency - trend analysis and research scope using bibliometric review. International Journal of Management Practice, 18(1), 64-91. https://doi.org/10.1504/IJMP.2025.143077 DOI: https://doi.org/10.1504/IJMP.2025.143077

Broby, D. (2022). Central bank digital currencies: policy implications. Law and Financial Markets Review, 16(1-2), 100-115. https://doi.org/10.1080/17521440.2023.2209294 DOI: https://doi.org/10.1080/17521440.2023.2209294

Chen, H., Hänsel, M., & Nguyen, H. (2025). Monetary policy transmission, central bank digital currency, and bank market power. Jahrbücher für Nationalökonomie und Statistik, 245(4-5), 527-576. https://doi.org/10.1515/JBNST-2024-0008 DOI: https://doi.org/10.1515/jbnst-2024-0008

Chen, Y. (2025). The rise of digital currency and the adaptability of traditional monetary policy transmission mechanisms. Critical Humanistic Social Theory, 2(2). https://doi.org/10.62177/CHST.V2I2.397 DOI: https://doi.org/10.62177/chst.v2i2.397

Cheng, Z. (2024). Evaluating the effectiveness of monetary policy for retail central bank digital currency. Latin American Journal of Central Banking, 5(3), 100111. https://doi.org/10.1016/J.LATCB.2023.100111 DOI: https://doi.org/10.1016/j.latcb.2023.100111

Davlatov, E., & Sági, J. (2025). The transmission mechanism of monetary policy and central bank digital currency: A new monetary order? Journal of Central Banking Theory and Practice, 14(1), 95-119. https://doi.org/10.2478/JCBTP-2025-0006 DOI: https://doi.org/10.2478/jcbtp-2025-0006

Eichengreen, B., & Viswanath-Natraj, G. (2022). Stablecoins and central bank digital currencies: Policy and regulatory challenges. Asian Economic Papers, 21(1), 29-46. https://doi.org/10.1162/ASEP_A_00843 DOI: https://doi.org/10.1162/asep_a_00843

Ikeda, D. (2025). Digital money as a medium of exchange and monetary policy in open economies. Macroeconomic Dynamics, 29, e162. https://doi.org/10.1017/S1365100525100618 DOI: https://doi.org/10.1017/S1365100525100618

Kóczián, B., Kollarik, A., Kiss, L., & Simon, P. (2022). Central bank digital currency: A new instrument of monetary policy. Public Finance Quarterly, 67(4). https://doi.org/10.35551/PFQ_2022_4_3 DOI: https://doi.org/10.35551/PFQ_2022_4_3

Lukonga, I. (2023). Monetary policy implications central bank digital currencies: Perspectives on jurisdictions with conventional and Islamic banking systems (IMF Working Paper No. 2023/060). International Monetary Fund. https://doi.org/10.5089/9798400236532.001 DOI: https://doi.org/10.5089/9798400236532.001

Stöckel, M. (2025). Digital but not crypto: possible design pitfalls and rebound effects for green monetary policy using central bank digital currency. Eurasian Economic Review, 15(2), 1-14. https://doi.org/10.1007/S40822-024-00302-X DOI: https://doi.org/10.1007/s40822-024-00302-x

Wainyaragania, K. A. (2023). The effect of digital currency on monetary policy in Tanzania: An empirical investigation. South Asian Journal of Social Studies and Economics, 20(4), 25-34. https://doi.org/10.9734/SAJSSE/2023/V20I4740 DOI: https://doi.org/10.9734/sajsse/2023/v20i4740

Wronka, C. (2023). Central bank digital currencies (CBDCs) and their potential impact on traditional banking and monetary policy: an initial analysis. Digital Finance, 5(3-4), 613-641. https://doi.org/10.1007/S42521-023-00090-0 DOI: https://doi.org/10.1007/s42521-023-00090-0

Wu, B., & Zhang, M. (2024). The impact of central bank digital currency on monetary policy effectiveness. Economic Change and Restructuring, 57(3). https://doi.org/10.1007/S10644-024-09720-Y DOI: https://doi.org/10.1007/s10644-024-09720-y