The Rise of Digital Currency and the Adaptability of Traditional Monetary Policy Transmission Mechanisms

Abstract

The rise of digital currency is profoundly transforming the traditional monetary policy transmission mechanism. With the widespread adoption of central bank digital currency (CBDC) and private digital currencies, central banks face new challenges in regulating money supply, interest rate management, and financial stability. The decentralization and cross-border circulation of digital currencies may weaken the role of traditional financial intermediaries, affecting the transmission of monetary policy through credit, interest rates, and asset prices. At the same time, their digital and traceable nature offers new opportunities for policy implementation, enabling central banks to monitor capital flows more accurately, thereby enhancing monetary policy transparency and execution efficiency. Against this backdrop, this paper explores how to optimize regulatory frameworks, adjust monetary policy tools, and strengthen international cooperation to ensure the stability and effectiveness of monetary policy in the digital currency era.