Template-type: ReDIF-Paper 1.0
Author-Name: Romain Baeriswyl
Author-Name-First: Romain
Author-Name-Last: Baeriswyl
Author-Person: pba446
Author-Name: Kene Boun My
Author-Name-First: Kene
Author-Name-Last: Boun My
Author-Person: pbo159
Author-Name: Camille Cornand
Author-Name-First: Camille
Author-Name-Last: Cornand
Author-Person: pco917
Title: Central Bank Digital Currency and Gresham's law: An experimental analysis
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.

Length: 39 pages
Creation-Date: 2026
Contact-Email: forschung@snb.ch
File-URL: https://www.snb.ch/en/publications/research/working-papers/2026/working_paper_2026_03
File-Format: text/html
Number: 2026-03
Classification-JEL: E52, E58
Keywords: Central Bank Digital Currency, Gresham's law, Laboratory experiment
Handle: RePEc:snb:snbwpa:2026-03