The effects of a central bank digital currency on bank lending depend 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 the