Central Bank Digital Currency and Gresham’s Law: An experimental analysis

Romain Baeriswyl (), Kene Boun My () and Camille Cornand
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Romain Baeriswyl: Swiss National Bank, Boersenstrasse 15, 8001 Zurich, Switzerland
Kene Boun My: BETA-Strasbourg University, 61 Avenue de la Forêt Noire - 67085 Strasbourg Cedex, France

No 2517, Working Papers from Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon

Abstract: In a monetary system where risky and risk-free money coexist, Gresham’s law predicts that people will hoard the risk-free money as a store of value and spend the risky money as a medium of exchange. The establishment of a payment system based on risk-free money, such as a retail CBDC, therefore seems doomed to failure. A laboratory experiment confirms this prediction. When the holding of risk-free money is not restricted, people hold and pay with risk-free money extensively. However, when the holding of risk-free money is limited by a ceiling or an unattractive interest rate, people mainly pay with risky money but hoard risk-free money.

Keywords: Central Bank Digital Currency; Gresham’s law; experiment (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Date: 2025
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Working Paper: Central Bank Digital Currency and Gresham's Law: An experimental analysis (2025)
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