Gresham’s Law

Gresham’s Law, in economics, the principle that when depreciated or debased currency is in circulation along with coins that have full value in terms of precious metal, the latter tend to disappear. According to Gresham's law, the good coins, those of full value, are either exported or melted down in order to realize their higher market value in foreign exchange or as bullion. After the use of paper money became widespread, Gresham's law was also applied to the similar effect of the circulation of depreciated paper money on metallic money.

The phenomena described by Gresham's law were noted by merchants, financiers, and statesmen long before the 16th century. When the English financier Sir Thomas Gresham expressed the thought that “bad money drives out good,” he made no theoretical exposition of the formulation, and not until the latter part of the 19th century did this principle become known as Gresham's law.