Assessment of the essence of digital currencies and features of their influence on the monetary system

Zherdetska Liliia
D.Sc. (Economics), Associate Professor, Head of the Banking Department, Odesa National Economic University, Odesa, E-mail: lzherdetska@gmail.com, ORCID ID: https://orcid.org/0000-0001-5398-868X

Havryliuk Yurii
3th year student, Faculty of Finance and Banking, Odesa National Economic University, Odesa, E-mail:ugavriluk90@gmail.com, ORCID ID:

Cite this article:

Zherdetska L., Havryliuk Yu. (2024) Assessment of the essence of digital currencies and features of their influence on the monetary system. Ed.: V.V. Kovalenko (ed.-in-ch.) and others [Vyznachennia sutnosti tsyfrovykh valiut ta osoblyvostei yikh vplyvu na monetarnu systemu; za red.: V.V. Kovalenko (gol. red.)], Scientific Bulletin of the Odesa National Economic University (ISSN 2313-4569), Odesa National Economics University, Odesa, No. 1-2 (314-315), pp. 42-50.

Abstract

The current conditions of the development of financial markets are characterized by large-scale changes: the emergence of new cryptocurrencies, technologies, business models, forms of agreements, etc. The development of financial technologies and digital currencies, on the one hand, creates threats of deterioration of financial stability, and on the other hand, creates new possibilities in making calculations. Digital currency issues are especially topical under the conditions of the modern development of the banking industry and the simultaneous growth of the virtual market. Substantiating the essence of digital currencies through the functions they perform and determining the directions of their influence on the monetary system.The article under consideration presents a systematic and comprehensive review of the theoretical and methodological approaches, as well as contemporary views on the formation and development of digital currencies as a new-generation innovative technology. The necessity of distinguishing between cryptocurrencies, stablecoins, and central bank digital currencies (CBDCs) is substantiated, and their essence is determined in the context of the functions they perform as money. Furthermore, a detailed classification of digital currencies is provided based on characteristics such as the level of centralization and the possibility of conversion to fiat currency. The authors of the article have assessed the cryptocurrency market by statistically analysing data on the value and trading volume of popular cryptocurrencies, thereby strengthening conclusions regarding the functions performed by CBDCs. The high level of cryptocurrency volatility is identified as a potential threat to financial stability, necessitating the establishment of an appropriate regulatory environment, as well as the use of leading financial technologies by central banks in their operations. Analysis of the experience of implementing CBDCs by certain central banks worldwide and the results of the pilot project for introducing the e-hryvnia have enabled the authors to draw conclusions about the possibility of wide-ranging use of CBDCs. It is found that unhindered conversion of cash and deposits into CBDCs may increase the number of bank crises, and the rate-setting regime for CBDCs should be taken into account when formulating monetary policy. It was determined that the impact of digital currencies on the money supply and market dynamics can be different depending on the type of assets that support them.The introduction of digital currencies by central banks can change the way banks interact and influence monetary policy. However, it also comes with risks, such as instability of the banking system due to changes in bank capitalization and asset allocation. In order to achieve positive effects and minimize risks, it is important to take into account both the classical principles of monetary policy and the new opportunities provided by the development of digital technologies.

Keywords

monetary system, digital currencies, cryptocurrencies, stable coins, central bank digital currencyн, money functions.

JEL classification: E420; E440; E580; DOI: https://doi.org/10.32680/2409-9260-2024-1-2-314-315-42-50

UD classification: 336.7

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