Digital Currencies and Bank Competition
63 Pages Posted: 3 Sep 2020 Last revised: 31 Mar 2021
Date Written: August 14, 2020
This article examines how the issuance of a Digital Currency by a non-bank operator impacts competition between banks in a cashless society. I analyze how the fee charged for the digital currency impacts the interest rates on loans and the fees charged by banks to depositors for paying by card and opening an account in a bank. I derive the conditions under which consumers use the digital currency to pay. I also discuss how the distribution mode of the digital currency may impact its use for payments.
Keywords: CBDC, digital currencies, payment cards, money demand, banking markets
JEL Classification: G21, L31, L42
Suggested Citation: Suggested Citation