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DIGITAL CURRENCIES' IMPACT ON TRADITIONAL MONETARY SYSTEMS: A
COMPARATIVE ANALYSIS OF BITCOIN AND CENTRAL BANK DIGITAL
CURRENCIES
Jo'raqulova Muhlisa Jahongir qizi
Assistant Lecturer at International Nordic University.
m.joraqulova@nordicuniversity.org
https://orcid.org/0009-0008-1398-3380
Boltaev Aziz Kuzievich
PhD, associate professor.
https://doi.org/10.5281/zenodo.17449918
Abstract.
This article examines the transformative impact of digital currencies on
conventional monetary systems through a comparative analysis of Bitcoin and Central Bank
Digital Currencies (CBDCs). The research synthesizes existing literature to evaluate how
decentralized cryptocurrencies and state-backed digital currencies challenge traditional banking
infrastructure, monetary policy transmission, and financial intermediation. This research
contributes to understanding how digital monetary innovations reshape the architecture of global
financial systems and the future trajectory of monetary sovereignty.
Keywords:
digital currencies, Bitcoin, monetary policy, financial system transformation,
cryptocurrency, blockchain technology, payment systems.
Аннотация.
В данной статье рассматривается преобразующее влияние цифровых
валют на традиционные денежные системы посредством сравнительного анализа
биткоина и цифровых валют центральных банков (CBDC). Исследование обобщает
существующую литературу, чтобы оценить, как децентрализованные криптовалюты и
поддерживаемые государством цифровые валюты бросают вызов традиционной
банковской инфраструктуре, трансмиссии денежно-кредитной политики и финансовому
посредничеству. Данное исследование способствует пониманию того, как инновации в
области цифровых денег меняют архитектуру мировых финансовых систем и будущую
траекторию денежно-кредитного суверенитета.
Ключевые слова:
цифровые валюты, биткоин, денежно-кредитная политика,
трансформация финансовой системы, криптовалюта, технология блокчейн, платежные
системы.
INTRODUCTION
The emergence of digital currencies represents one of the most significant disruptions to
monetary systems since the abandonment of the gold standard. Bitcoin's introduction in 2009 as a
decentralized, peer-to-peer electronic cash system challenged fundamental assumptions about the
necessity of centralized monetary authorities and traditional banking intermediaries [1].
Subsequently, central banks worldwide have responded by developing their own digital currencies,
leading to what scholars characterize as a "currency digitalization race" that fundamentally
questions the future architecture of money [2]. Traditional monetary systems, built upon fractional
reserve banking, central bank policy transmission through interest rate mechanisms, and
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commercial bank intermediation, now face unprecedented competition from both decentralized
cryptocurrencies and state-backed digital alternatives.
METHODOLOGY AND LITERATURE REVIEW
This study employs a systematic literature review methodology, analyzing peer-reviewed
academic articles, central bank publications, and authoritative reports from international financial
institutions. The research synthesizes findings from ten primary sources selected based on their
relevance to digital currency impacts on monetary systems, methodological rigor, and citation
influence within financial economics literature. Existing literature reveals a bifurcated scholarly
discourse, with one stream examining Bitcoin's disruptive potential as a non-sovereign,
algorithmically-governed monetary system operating outside traditional central bank control, and
another analyzing CBDCs as evolutionary adaptations of fiat currency to digital platforms while
preserving state monetary authority [3]. Research by Brunnermeier and colleagues demonstrates
how Bitcoin's fixed supply algorithm fundamentally differs from central banks' discretionary
monetary policy, potentially limiting countercyclical stabilization capacity but offering protection
against inflationary debasement [4].
Conversely, studies on CBDCs emphasize their potential to enhance monetary policy
transmission by enabling direct central bank-to-citizen payment channels, eliminating commercial
bank intermediation delays, and potentially implementing negative interest rates more effectively
[5]. Literature on payment systems highlights Bitcoin's high transaction costs and energy
consumption as impediments to widespread adoption as a medium of exchange, while
acknowledging its revolutionary elimination of trusted third parties through blockchain
verification [6]. CBDC research emphasizes improved payment efficiency, reduced settlement
risks, and enhanced financial inclusion through digital wallet accessibility, though raising concerns
about privacy erosion and potential disintermediation of commercial banking [7]. Comparative
analyses reveal that while Bitcoin challenges monetary sovereignty by operating as a parallel
currency system beyond state control, CBDCs reinforce state monetary authority while
modernizing the technological substrate of fiat currencies [8].
RESULTS AND DISCUSSION
The comparative analysis reveals fundamental structural differences in how Bitcoin and
CBDCs impact traditional monetary systems, with implications across multiple dimensions of
financial system functioning. Regarding monetary policy transmission, Bitcoin's predetermined,
algorithmically-governed supply schedule—capped at twenty-one million units—eliminates
discretionary monetary policy, representing what economists describe as a return to rule-based
monetary systems analogous to gold standard constraints [4]. This design insulates Bitcoin holders
from inflationary monetary expansion but simultaneously prevents countercyclical stabilization
during economic downturns, potentially exacerbating business cycle volatility if Bitcoin achieved
significant adoption as a primary medium of exchange.
In contrast, CBDCs maintain full central bank discretion over money supply while
potentially enhancing policy transmission effectiveness by enabling direct household and firm
access to central bank liabilities, bypassing commercial bank intermediation that can attenuate
policy signals [5]. The impact on financial intermediation represents perhaps the most profound
disruption to traditional banking.
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Bitcoin's peer-to-peer transaction model eliminates the necessity of trusted intermediaries
for payment verification, fundamentally challenging the raison d'être of banks as payment system
operators, though banks retain advantages in credit assessment, maturity transformation, and
liquidity provision that purely transactional cryptocurrencies cannot replicate [6].
CBDCs present a more complex intermediation challenge, as they could enable direct
central bank-to-citizen relationships that disintermediate commercial banks from both payment
services and deposit-taking functions. Research indicates that if households shift significant
deposits from commercial banks to CBDC accounts, bank lending capacity could contract unless
central banks recycle CBDC holdings back to commercial banks through repo operations or other
mechanisms [7]. The analysis of cross-border payment implications reveals convergent benefits
from both digital currency types in reducing transaction costs, settlement times, and correspondent
banking chains that characterize traditional international payments. Bitcoin's borderless nature
theoretically enables frictionless international value transfer, though volatility and limited
merchant acceptance constrain practical utility.
However, international CBDC adoption raises complex questions about currency
competition, as digitalization reduces switching costs between currencies, potentially accelerating
dollarization or other forms of currency substitution in economies with weak monetary
institutions. The regulatory and stability implications differ markedly. Bitcoin's decentralized
architecture resists regulatory oversight, creating concerns about financial crime, tax evasion, and
consumer protection while offering users financial privacy and censorship resistance. CBDCs
operate within existing regulatory frameworks, enabling enhanced compliance monitoring but
potentially creating single points of failure and systemic risks if central bank digital infrastructure
is compromised.
CONCLUSION
This comparative analysis demonstrates that digital currencies—whether decentralized
cryptocurrencies like Bitcoin or centralized CBDCs—fundamentally challenge traditional
monetary architecture, though through divergent mechanisms and with distinct implications for
monetary governance. Bitcoin represents a radical departure from state-controlled money, offering
an algorithmically-governed alternative that operates outside conventional banking systems but
faces significant scalability, volatility, and energy consumption challenges that limit its
functionality as a widespread medium of exchange. Central Bank Digital Currencies, conversely,
modernize fiat currency infrastructure while preserving state monetary sovereignty, potentially
enhancing policy transmission and payment efficiency while raising concerns about commercial
bank disintermediation and privacy erosion. The research reveals that the future monetary
landscape will likely feature coexistence rather than replacement, with multiple currency forms
serving different functions across the spectrum from store-of-value to transaction medium to unit-
of-account. Traditional monetary systems must adapt by incorporating digital innovations while
addressing the regulatory challenges, stability risks, and distributional consequences of currency
digitalization.
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Note
, SDN/18/08. International Monetary Fund.
