The Economic Policy Trilemma: Does Digital Currency Adoption Constrain National Monetary Policy Autonomy in Japan

Natsumi Okamoto ()

International Journal of Economic Policy, 2025, vol. 5, issue 4, 62 - 72

Abstract: Purpose: The purpose of this article was to analyze the economic policy trilemma: does digital currency adoption constrain national monetary policy autonomy. Methodology: This study adopted a desk methodology. A desk study research design is commonly known as secondary data collection. This is basically collecting data from existing resources preferably because of its low cost advantage as compared to a field research. Our current study looked into already published studies and reports as the data was easily accessed through online journals and libraries. Findings: Based on the concept of the economic policy trilemma, the adoption of digital currencies presents a complex challenge to national monetary policy autonomy. While a country's own central bank digital currency (CBDC) can enhance policy tools and control, widespread adoption of a foreign CBDC or global private digital currencies could significantly constrain it. This occurs as cross-border capital flows become easier and faster, forcing nations to choose between exchange rate stability, capital mobility, and independent monetary policy. Ultimately, digital currency adoption does not eliminate the trilemma but intensifies it, potentially limiting a nation's ability to set interest rates according to its domestic needs. Unique Contribution to Theory, Practice and Policy: The dilemma hypothesis, new monetarist theory& financial cycle theory may be used to anchor future studies on the effect of the economic policy trilemma: does digital currency adoption constrain national monetary policy autonomy. For central banks tasked with implementation, a cautious and evidence-based operational approach is paramount. We recommend prioritizing a "sandboxed" and phased rollout, beginning with a strictly limited, non-interest-bearing, and domestically-focused CBDC. For central banks tasked with implementation, a cautious and evidence-based operational approach is paramount. At the strategic policy level, safeguarding national economic sovereignty must be the overriding principle.

Keywords: Economic; Policy; Trilemma; Digital; Currency; Adoption; Constrain; National; Monetary; Policy; Autonomy (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
https://carijournals.org/journals/IJECOP/article/view/3253 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bhx:ijecop:v:5:y:2025:i:4:p:62-72:id:3253

Access Statistics for this article

More articles in International Journal of Economic Policy from CARI Journals Limited
Bibliographic data for series maintained by Chief Editor ().