Cryptocurrencies, Money Demand, and Monetary Policy
Muhammad Zubair Mumtaz, Zachary Alexander Smith, Naoyuki Yoshino · Bulletin of Monetary Economics and Banking · 2025
This study examines the nexus between money demand and cryptocurrencies by estimating two simultaneous equations using Divisia indices as a proxy for money demand and volume traded for cryptocurrencies. The study examines the linkage between cryptocurrencies and money demand and their potential influence over monetary policy actions. It finds that the volume of cryptocurrencies traded negatively influences money demand. Moreover, we see a positive association between money demand and cryptocurrencies, implying that as the demand for money increases, the demand for cryptocurrencies increases. Further, we examine the determinates of cryptocurrencies and report that the return of cryptocurrencies, the financial development index, GDP, inflation, and stock market indices are significant predictors of the demand for cryptocurrencies.