Finance Brown Bag: Anna Grodecka

Published: 2019-04-01

Competition between private bank money and central bank money: a historical lesson for CBDC introduction

This Friday, 5 April, at 12.00 in the Alfa seminar room, Anna Grodecka will present her paper “Competition between private bank money and central bank money: a historical lesson for CBDC introduction” in the Finance Brown Bag.

This is work in progress, so any comments are welcome. Macro guests interested in monetary policy are also welcome! Sandwiches will be provided.

 

Abstract: In this paper, a unique event is studied: the opening of Bank of Canada in 1934, the central bank note issuance monopoly and its impact on the note issuing chartered banks. Between 1935-1950, chartered banks had to gradually withdraw their notes from circulation. In a difference-in-differences analysis, I show that chartered banks constrained by new issuance limits experienced higher volatility of return-on-equity in the short run and lower Z-scores and return-on-assets in the longer horizon, suggesting that note issuance was an important source of revenue for private banks and allowed them to smooth the profits. Banks relatively more affected by the new law decreased also the share of loans in their portfolio. This study of central bank cash implementation can offer lessons for the current debates on a new form of central bank money - central bank digital currencies - and their potential impacts on commercial banks.

 

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