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

Romain Baeriswyl (), Kene My and Camille Cornand ()
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Romain Baeriswyl: Banque Nationale Suisse
Kene My: BETA - Bureau d'Économie Théorique et Appliquée - AgroParisTech - UNISTRA - Université de Strasbourg - Université de Haute-Alsace (UHA) - Université de Haute-Alsace (UHA) Mulhouse - Colmar - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement
Camille Cornand: GATE Lyon Saint-Étienne - Groupe d'Analyse et de Théorie Economique Lyon - Saint-Etienne - UL2 - Université Lumière - Lyon 2 - UJM - Université Jean Monnet - Saint-Étienne - EM - EMLyon Business School - CNRS - Centre National de la Recherche Scientifique, CNRS - Centre National de la Recherche Scientifique

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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)
Date: 2025-07-03
Note: View the original document on HAL open archive server: https://hal.science/hal-05141963v1
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