Free Banking with Tokenized Money

Hans Gersbach and Sebastian Zelzner

No 21785, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We study competition among issuers of tokenized money -- tradable, par-redeemable claims -- in an overlapping-generations economy with long-term investments that require rollover before maturity. In frictionless environments, Bertrand competition can implement the first-best allocation, but the rollover channel depends on how issuers remunerate investors: competition through yields supports active secondary-market trade, whereas competition through issuance discounts forces rollover through potentially costly redemption and reissuance. When some issuers secretly abscond with funds, revealed absconding triggers default and exit, concentrating savings on surviving issuers and lowering aggregate rollover needs. This funds-concentration effect shifts equilibrium refinancing rates and redistributes returns across cohorts, so even investors who enter only after misconduct is revealed bear part of its consequences. Finally, restrictions on token remuneration can create inefficiencies and instability in rollover markets.

Keywords: Tokenized money; Private money; deposit tokens; Stablecoins; token remuneration; funds concentration; Rollover (search for similar items in EconPapers)
JEL-codes: E4 E5 G1 G2 (search for similar items in EconPapers)
Date: 2026-07
References: Add references at CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP21785 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:21785

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP21785

Access Statistics for this paper

More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK.
Bibliographic data for series maintained by CEPR ().