Central Bank Digital Currencies and Bank Net Interest Margin

In light of the accelerated efforts by global monetary authorities to establish digital currencies, CBDCs are impacting banks' intermediary functions and profitability. This paper uses bank-level data from 43 countries between 2017 and 2022, combined with a central bank CBDC stance index based on official statements, to examine how CBDC development affects bank profitability. The study finds that a more positive stance by central banks towards CBDCs can significantly improve banks' net interest margin (NIM). To cope with increasingly fierce deposit competition, banks will raise deposit rates to retain funds, but this will also lead to higher lending rates. This research provides a new perspective on the integration of sovereign digital currencies with traditional financial intermediaries.