A Study of the Challenges of Digital Currencies to the Traditional Financial System and Their Implications for Economic Policy

Digital currencies, as an emerging monetary form, have profoundly transformed the landscape of financial transactions and redefined the structure of economic ecosystems, exerting an unprecedented influence on traditional financial systems. This study scrutinizes the ramifications of digital currencies on conventional financial systems, utilizing a theoretical framework as the foundation. It specifically employs Vector Autoregression (VAR) and Dynamic Stochastic General Equilibrium (DSGE) models to construct an impact model that examines the influence of digital currencies on monetary policies. The analysis utilizes empirical data to assess the efficacy of digital currencies in shaping economic policy, focusing particularly on their effect on monetary intermediation targets. The findings reveal that digital currencies significantly affect monetary policy, primarily through mechanisms of interest rate and exchange rate transmission. Moreover, the advent of digital currencies is associated with reductions in the money supply, exchange rates, and credit volumes of commercial banks. The analysis establishes a long-term stable equilibrium among the money supply, digital currency volume, cash leakage rate, fixed-to-floating rate ratio, and excess reserve ratio. Notably, the scale of digital currency exerts the most substantial impact on the money supply, contributing 10.89% to its variance. This study underscores the intricate relationships between digital currencies and economic policies, highlighting their critical role in contemporary financial systems.