Does cryptocurrency adoption cushion the impact of fiat currency depreciation and instability on economic development?

This study investigates whether cryptocurrency adoption moderates the impact of fiat currency depreciation and instability on economic development across 118 countries from 2021 to 2024. Using unbalanced panel data and fixed-effects estimations with clustered, bootstrapped, and Driscoll–Kraay standard errors, as well as the Generalized Method of Moments, the results reveal that both depreciation and instability significantly hinder development. While cryptocurrency adoption itself is associated with a negative impact on development, it mitigates the adverse effects of depreciation and instability. Notably, this moderating effect is evident only in emerging and developing economies. However, despite these benefits through the channels of government expenditures, trade openness, foreign direct investment, and financial depth, the broader harms of cryptocurrency adoption outweigh the gains. Consequently, aggregate economic development declines more on net when cryptocurrency adoption is introduced to counteract depreciation and instability than when these conditions occur without adoption. Our paradox recommends that while cryptocurrency adoption can serve as a tool to address monetary challenges, its drawbacks should be managed before it can contribute positively to development.