Impact of Cryptocurrencies on the Country’s Economy

Cryptocurrencies, just like official money, have the function of a store of value. This popularity is explained by the desire of investors to expand the number of their investment assets, which do not have a direct correlation with each other, especially during the financial crisis. The instability of national currencies encourages investing in cryptocurrencies to protect them from external factors that can affect the exchange rate of official currencies.

Influence on Money Circulation

Cryptocurrencies can be converted into real money. Many electronic exchanges offer quotes for cryptocurrencies and transfer systems that ensure their movement.

The rapid growth of the cryptocurrency market every year increases its pressure on money circulation in the world and on the national economy. Thus, the question of studying the directions of such an influence of cryptocurrencies on an already established payment system is becoming more and more urgent. The issues of regulation of the financial market and the policy of central banks to ensure financial stability in the context of the emergence of such a phenomenon as cryptocurrency is especially acute.

How Is the Government Responding to the Growth in Crypto Volumes?

For the implementation of an effective monetary policy, the spread of cryptocurrencies has its consequences:

  • The increase in the number of purchases that can be made with cryptocurrencies reduces the need to use real money, which is offered by central banks, which leads to an increase in the amount of money that does not handle trade.
  • The volume of transactions carried out using cryptocurrencies does not matter, while the number of such payments directly affects the decrease in the monetary base.
  • Trading in the virtual space using cryptocurrencies inevitably affects the decrease in the demand for real money, which leads to a change in monetary aggregates that directly affect the speed of money circulation. 

Important Aspects

Cryptocurrencies are a financial innovation that circumvents existing restrictions and inevitably affects the volatility of price levels and the entire payment system. This influence is considered in the following directions:

  1. Decrease in the share of real money.
  2. Changes in monetary aggregates.
  3. Oppression of official national currencies.

The number of cryptocurrencies in circulation does not exceed 0.3% of cash on the scale of one state. Of course, the possibility of a significant increase in this indicator in the future cannot be ruled out, because as a result of fluctuations in the exchange rate, the number of cryptocurrencies in circulation can sharply increase.

The volume of the electronic money market is considered insignificant concerning the global turnover. However, if we consider the volume of transactions involving cryptocurrencies concentrated on the scale of one developing country, this can seriously affect the value of the national currency.

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