iCloud and Switching System Photo Library

I understand the following from a previous artical, "If you designate a new library as the System Photo Library and then turn on iCloud Photos, the photos and videos in the new library will merge with those already in your iCloud Photos. If you want to keep the contents of your photo libraries separate, don’t turn on iCloud Photos for more than one library in Photos."

My question is will the merge 1) only occur in the cloud or 2) will all those pictures from the previous system library begin to download to the new system library?

I am hoping the first as my library is getting so large that photos is dragging and was hoping to create a new library starting with 2020 but still have them all together in the cloud...