Central bank currency competition lowers bank profitability but not lending.
The article looks at how the introduction of a new central bank currency affects commercial banks creating private money. By studying the opening of the Bank of Canada in 1935, researchers found that banks facing competition from the new currency saw lower profits but did not reduce their lending compared to unaffected banks. This suggests that the arrival of a new central bank currency can impact bank profitability, but not necessarily their lending practices. These findings could provide insights for discussions on central bank digital currencies.