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Private bank money vs central bank money: A historical lesson for CBDC introduction

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  • Grodecka-Messi, Anna
  • Zhang, Xin

Abstract

How does the arrival of a new central-bank issued currency affect commercial banks creating private money? In this paper, we study the opening of Bank of Canada in 1935 and the effects of banknote issuance monopoly on chartered banks. We use bank-level data to provide evidence that banks mostly affected by the currency competition experienced lower profitability but did not decrease their lending compared to unaffected peers. This analysis of the arrival of a new central bank currency can offer lessons for debates on central bank digital currencies (CBDCs).

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  • Grodecka-Messi, Anna & Zhang, Xin, 2023. "Private bank money vs central bank money: A historical lesson for CBDC introduction," Journal of Economic Dynamics and Control, Elsevier, vol. 154(C).
    • Handle: RePEc:eee:dyncon:v:154:y:2023:i:c:s0165188923001136
    DOI: 10.1016/j.jedc.2023.104707
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    1. Sebastian Infante & Kyungmin Kim & Anna Orlik & André F. Silva & Robert J. Tetlow, 2022. "The Macroeconomic Implications of CBDC: A Review of the Literature," Finance and Economics Discussion Series 2022-076, Board of Governors of the Federal Reserve System (U.S.).

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    More about this item

    Keywords

    Money and banking; Central bank digital currencies; CBDC; Central banks; Bank profitability; Bank lending; Bank of Canada; Banknote monopoly;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • N22 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: 1913-

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