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

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).