CBDC effect on lending depends on competition – BoC researchers
CBDC could increase bank lending if banks have some market power, they say
The effect of a central bank digital currency (CBDC) on bank lending depends heavily on the level of competition in the sector, researchers from the Bank of Canada find.
In a paper, Jonathan Chiu et al use a model to analyse whether introducing a CBDC causes disintermediation of banks.
Under a scenario where banks have no market power, the authors find a CBDC could increase competition for deposits and reduce bank lending.
However, where banks have market power, they find a CBDC could have
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