Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/260291 
Year of Publication: 
2019
Series/Report no.: 
Working Paper No. 2019:21
Publisher: 
Lund University, School of Economics and Management, Department of Economics, Lund
Abstract: 
In this paper, a unique event is studied: the opening of Bank of Canada in 1935, the central bank note issuance monopoly and its impact on the note issuing chartered banks. Between 1935-1950, Canadian 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. The effect on lending is either non-significant or ambiguous. 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.
Subjects: 
Banknote Monopoly
Banknote Issuance
Cash
Central Bank Digital Currencies
Double Liability
Canadian banks
Financial Stability
Bank of Canada
JEL: 
E42
E50
G21
G28
N22
Document Type: 
Working Paper

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