A Contribution to Novelties in Theoretical Framework for Digital Currency Economics

Abstract

The advent of digital currencies, including cryptocurrencies and Central Bank Digital Currencies (CBDCs), presents new challenges and opportunities in the financial landscape. This study addresses the gap in economic theory regarding digital currencies by proposing a comprehensive theoretical framework that integrates their distinct characteristics with traditional monetary principles. The primary research objective is to explore the issuance, circulation, and valuation of digital currencies, as well as their impacts on monetary policy and financial stability. Using a structured theoretical methodology, the study develops a set of hybrid models that combine algorithmic issuance and discretionary policy adjustments, stability protocols for volatility control, and a regulatory framework for global compliance and financial security. The results indicate that digital currencies can complement traditional monetary functions but necessitate careful regulation to mitigate risks to monetary policy transmission and financial stability. The findings suggest policy recommendations, including global regulatory standards and enhanced stability mechanisms, to facilitate the safe integration of digital currencies into the global economy. The originality of this research lies in its hybrid theoretical framework, which balances the decentralised aspects of cryptocurrencies with the controlled issuance of CBDCs, offering a novel approach to understanding digital currency economics. This framework provides valuable insights for policymakers, financial institutions, and academics, helping them leverage digital currency benefits while addressing associated risks. The study contributes significantly to digital currency economics, presenting actionable guidance for a sustainable integration of digital finance into traditional financial systems.