Gresham's Law (Noun)
Meaning
(economics) the principle that when two kinds of money having the same denominational value are in circulation the intrinsically more valuable money will be hoarded and the money of lower intrinsic value will circulate more freely until the intrinsically more valuable money is driven out of circulation; bad money drives out good; credited to Sir Thomas Gresham.
Classification
Nouns denoting cognitive processes and contents.
Examples
- In economics, Gresham's Law states that bad money will always drive out good money, ultimately leaving the less valuable currency in circulation.
- The introduction of a new currency with lower metal content led to concerns that Gresham's Law would come into effect, causing the more valuable coins to disappear from circulation.
- In the 16th century, Sir Thomas Gresham observed that Gresham's Law was causing the more valuable coins to be hoarded, while the inferior coins were being used for everyday transactions.
- As predicted by Gresham's Law, the introduction of a new, less valuable currency led to the more valuable coins being withdrawn from circulation and saved.
- The principles of Gresham's Law have been observed throughout history, as the less valuable currency tends to dominate circulation, while the more valuable coins are hoarded or saved.