Empirical Analysis of the Impact of Legal Tender Digital Currency on Monetary Policy -Based on China's Data

TL;DR

This paper empirically examines how China's digital currency influences monetary policy effectiveness and money supply multipliers using data from 2010 to 2022.

Contribution

It combines theoretical analysis with empirical data to assess the impact of China's digital currency on monetary policy and introduces a VECM model for analysis.

Findings

Digital currency issuance affects monetary policy effectiveness

Positive impact on narrow and broad money multipliers

Suggests exploring new monetary policy approaches with digital currencies

Abstract

This paper takes the development of China's Central bank digital currencies as a perspective, theoretically analyses the impact mechanism of the issuance and circulation of Central bank digital currencies on China's monetary policy and various variables of the money multiplier; at the same time, it selects the quarterly data from 2010 to 2022, and examines the impact of the Central bank digital currencies on the money supply multiplier through the establishment of the VECM model. The research results show that: the issuance of China's Central bank digital currencies will have an impact on the effectiveness of monetary policy and intermediary indicators; and have a certain positive impact on the narrow money multiplier and broad money multiplier. Based on theoretical analyses and empirical tests, this paper proposes that China should explore a more effective monetary policy in the context of Central bank digital currencies in the future on the premise of steadily promoting the development of Central bank digital currencies.