Gresham' s Law

in LeoFinancelast year

let's assume you have two coins a silver one and one mate of less valuable copper so the more legal tender laws state that they have the same value and merchants are forced to accept both we'll also assume you're hungry and coincidentally a loaf of bread costs exactly one coin which of the two coins would you use to pay the baker Gresham's law named after Sir Thomas Gresham basically tells us that bad money drives up good or in other words that of course you'll want to keep the more valuable silver coin and use the copper one since other people will do the same silver coins will eventually no longer circulate because everyone will just hang on to them however this only happens when the state is able to enforce legal tender laws if those don't exist or people are no longer willing to follow them where Sims law can operate in Reverse with a good money driving out bad money because merchants will only accept payment methods they consider valuable this reverse of Gresham's law is called kiais law in honor of Adelphia and can be observed in situations such as citizens of Eastern European countries after the Soviet bloc collapsed using dollars instead of their volatile currencies or similar situations and let's say South America where legal tender laws are either non-existent or they exist but well people don't care