Central Bank Digital Currency and Deposit Competition

How does a central bank digital currency (CBDC) affect bank deposit market competition? This paper shows that cash-like retail e-CNY enhanced the deposit market competition by reshaping the perceived riskiness differential between large and small banks. I document the “convergence” of large and small banks in terms of deposit rates (prices) and quantities after the introduction of e-CNY. This paper provides the first empirical evidence of the distributional effects of a cash-like retail CBDC (e-CNY) across heterogeneous banks. While small banks experienced a “crowd-in” effect, large banks underwent the “crowd-out” effect