Gresham's Law, popularly stated as bad money drives out good, holds that when two forms of currency are required by law to be accepted at equal face value but differ in real value, people spend the less valuable, or bad, money and hoard the more valuable, or good, money, so the bad money dominates circulation. It is named for the Tudor financier Sir Thomas Gresham, though the economist Henry Dunning Macleod formally attached his name to the law in 1857. The pattern recurs whenever a fixed exchange rate is imposed between two monies of differing real worth, from debased coinage to competing paper currencies.
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Fiat Currency, Concepts Gresham's Law describes overvalued currency driving sound currency out of circulation, a dynamic relevant to any monetary system where currencies circulate at a fixed nominal rate, including modern fiat regimes.
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1. Wikipedia
Wikimedia FoundationGresham's law
The expression 'Gresham's Law' dates back only to 1858, when British economist Henry Dunning Macleod (1858, pp. 476-8) decided to name the tendency for bad money to drive good money out of circulation after Sir Thomas Gresham (1519-1579).
- Associated With: Fiat Currency
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