Cryptocurrency, Money Supply And Monetary Policy: Theoretical And Empirical Reviews

Abstract

The rapid emergence of cryptocurrencies has introduced new dynamics into global monetary systems, raising concerns about the effectiveness of conventional monetary policy frameworks. As decentralized digital currencies operate largely outside the control of central banks, their growing adoption may weaken monetary policy transmission mechanisms and complicate the management of money supply. This paper provides a theoretical and empirical review of the relationship between cryptocurrency and monetary policy, with particular emphasis on implications for central bank control over money supply. Drawing on established monetary theories and recent empirical evidence from both advanced and emerging economies, including Nigeria, the study synthesizes key findings, identifies areas of consensus and divergence in the literature, and highlights existing research gaps. The review shows that while cryptocurrencies do not yet pose an immediate threat to monetary policy effectiveness, their rapid growth and increasing use as alternative stores of value and payment instruments could, over time, undermine central banks’ ability to regulate liquidity and ensure price stability. The paper concludes by outlining policy-relevant insights and directions for future research.