IMPACT OF DIGITAL CURRENCIES ON BANK PROFITABILITY AND CREDIT CREATION

Abstract

The exponential increase in the creation of digital currencies, including cryptocurrency and Central Bank Digital Currency, has significantly shifted the foundation of the global financial marketplace. The research will assess how digital currency impacts bank profits and the ability to create credit, by assessing how technology has impacted the way a banker historically performed his/her functions. The study used quantitative methods to analyze selected commercial bank data, looking at relationships between essential financial variables using descriptive Statistics, Correlation and Regression Analysis. While digital currencies improve transaction efficiency and support increased financial inclusion for consumers, they can also challenge banks' ability to mobilize deposits and make loans, thus impacting their profitability and ability to create credit. Based on these findings, it is evident that new strategies and regulatory environments need to be developed that create a balance between innovations in digitized finance and the need for maintaining a secure monetary system. The contribution of this research will assist us in developing a better understanding of how traditional banking performance may be impacted by the evolution of digitized financial environments.