Cryptocurrency Regulation and Monetary Policy Transmission in Developing Economies: A Cross-Country Panel Analysis

Abstract

This study examines the implications of cryptocurrency adoption for the transmission of monetary policy in developing economies. Using a panel of twelve emerging-market and developing economies (India, Indonesia, Pakistan, Bangladesh, Vietnam, the Philippines, Nigeria, Kenya, Egypt, Turkey, Brazil, and Argentina) over the period 2017 to 2024, the analysis estimates panel vector autoregression (VAR) models that incorporate cryptocurrency trading volumes alongside conventional monetary aggregates, policy rates, exchange rates, and inflation. The empirical results show that a one-standard-deviation shock to cryptocurrency trading volume reduces the cumulative twelve-month impact of a policy rate change on headline inflation by approximately 18.6 per cent (95 per cent confidence interval: 9.2 to 28.1 per cent), with the attenuation strongest in countries experiencing the highest growth in retail crypto adoption. Variance decomposition attributes roughly 11.4 per cent of exchange-rate fluctuations to cryptocurrency innovations in the post-2020 sample. The attenuation effect is significantly smaller in jurisdictions that have implemented restrictive cryptocurrency regulation, as measured by a constructed regulatory stringency index, while jurisdictions adopting a permissive or unclear posture exhibit larger monetary policy leakages. The findings contribute to ongoing debates on the macroeconomic consequences of private digital money in emerging markets and inform the design of regulatory and central bank digital currency (CBDC) strategies in the Global South.