Exploring the Economic Impact of Digital Currencies on Traditional Financial Systems: Challenges and Opportunities

Abstract

This study investigates the economic impact of digital currencies on traditional financial systems, focusing on the challenges and opportunities that arise from the integration of digital assets into mainstream finance. Using a qualitative approach based on literature review and library research, this article synthesizes existing research to examine how digital currencies—particularly cryptocurrencies and central bank digital currencies (CBDCs)—are reshaping the global financial landscape. The analysis reveals that digital currencies present opportunities for enhanced financial inclusion, reduced transaction costs, and improved efficiency in cross-border payments. However, these benefits are accompanied by significant challenges, including regulatory uncertainty, cybersecurity risks, and potential disruptions to monetary policy and financial stability. As digital currencies continue to evolve, their growing influence demands coordinated regulatory frameworks and technological adaptations within traditional financial institutions. This study contributes to a deeper understanding of how digital currencies impact economic structures, offering insights that can guide policymakers, financial institutions, and investors in navigating the transformation of financial ecosystems. By addressing both the advantages and challenges, the research highlights the importance of a balanced approach to digital currency adoption that fosters innovation while mitigating risks.