Digital Currencies and Bank Competition

Abstract

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