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

Author

Listed:
  • Romain Baeriswyl

    (Banque Nationale Suisse)

  • Kene Boun 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)

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.

Suggested Citation

  • Romain Baeriswyl & Kene Boun My & Camille Cornand, 2025. "Central Bank Digital Currency and Gresham's Law: An experimental analysis," Working Papers hal-05141963, HAL.
    • Handle: RePEc:hal:wpaper:hal-05141963
    Note: View the original document on HAL open archive server: https://hal.science/hal-05141963v1
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