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

Romain Baeriswyl, Kene Boun My and Camille Cornand

No 2026-03, Working Papers from Swiss National Bank

Abstract: In a monetary system in which risk-free and risky money coexist, Gresham's law predicts that people will prefer to hoard risk-free money as a store of value and spend risky money as a medium of exchange. Establishing a payment system on the basis of risk-free money, such as a retail CBDC, while maintaining the fractional reserve banking system in place poses numerous challenges. In a laboratory experiment, we demonstrate that when the holding of risk-free money is unrestricted, people hold and pay with it extensively. However, when the ability to hold risk-free money is limited by a ceiling or an unattractive interest rate, people tend to hoard risk-free money and use risky money for payments.

Keywords: Central Bank Digital Currency; Gresham's law; Laboratory experiment (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2026
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Related works:
Working Paper: Central Bank Digital Currency and Gresham’s Law: An experimental analysis (2025)
Working Paper: Central Bank Digital Currency and Gresham's Law: An experimental analysis (2025)
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