The Impact of Cryptocurrencies on the Financial Market

Abstract

The emergence of cryptocurrencies has posed challenges to governments in managing the money supply. For years, governments have exercised monetary policy by controlling the supply of national currencies. However, cryptocurrencies are decentralized, meaning governments have little or no power to control them. This chapter provides a literature review on the impact of cryptocurrencies on (1) the national monetary policy, (2) the international monetary system, and (3) the role of cryptocurrency within the banking system. Research reveals that governments could consider developing their own cryptocurrency to maintain power and influence the money supply. Alternatively, they can use the legal framework to enable or disable cryptocurrency as legal tender within their jurisdictions. Due to its global nature, cryptocurrency can be used as an international payment method and become an integrated part of the FOREX market. Lastly, as cryptocurrency continues to gain popularity worldwide, regulations on crypto exchanges and issuers will be needed to avoid price bubbles.