Study On The Influence Of Legal Digital Currency On China’s Monetary Policy

Digital currency is a need of the mobile internet era and an inevitable product of economic development and technological progress.With the continuous innovation and integration of blockchain technology and internet finance,it has become an irreversible trend for central banks to issue legal digital currencies.The outline of the14 th five-year plan and vision 2035 proposes to "steadily promote the research and development of digital currency",and a number of regions have already launched pilot issuance of e-CNY.The issuance and circulation of a legal digital currency will not only profoundly affect the public’s choice of payment methods,but will also have an impact on China’s monetary system and structure,which in turn will affect China’s monetary policy.In-depth research on the mechanism and quantitative investigation of the impact of legal digital currency on China’s monetary policy will not only help deepen people’s understanding of the essential features and operation mechanism of digital currency,but also provide useful references for improving China’s monetary theory and optimising monetary policy.This paper takes the impact of legal digital currency on China’s monetary system as the starting point,and focuses on the impact of legal digital currency on the transmission of monetary policy and the effectiveness of monetary policy in China.Firstly,it introduces the concepts and theoretical foundations of legal digital currency,while taking e-CNY as an example to explain the value positioning,operation mode,payment method and innovation mechanism of legal digital currency.Subsequently,the impact of legal digital currency on M0,M2,market interest rate and inflation rate is quantitatively assessed by constructing a VAR model and using impulse response function and variance decomposition methods.Combining the theoretical analysis and empirical test results,this paper concludes that: 1.issuing legal digital currency will partially replace cash in circulation,squeeze out bank demand deposits and increase the quantity of base money;2.issuing legal digital currency will not only help to smooth the transmission channels of interest rates and credit,but also help to enhance the central bank’s control over the monetary system,shorten the time lag of monetary policy and unblock the transmission channels of structural monetary policy.Finally,this paper puts forward corresponding policy recommendations from four perspectives: improving the legal and regulatory framework,upgrading technology,optimising the monetary policy toolbox and establishing sound application scenarios.