Where two moneys circulate at a fixed legal rate that overvalues one, the overvalued money circulates and the undervalued is hoarded, melted or exported.
Named for Gresham by Macleod in 1858, though Copernicus stated it earlier. It requires a fixed legal or customary exchange rate: absent one, good money simply commands a premium and Thiers's law applies instead.
In practice
- Where two currencies are legal tender at a fixed rate, the undervalued one disappears into savings and the overvalued one circulates.
- A firm that treats two grades of component as interchangeable at one price finds only the cheaper grade in the stores.
- Further reading
- Wikipedia
- Subject
- Economics & Incentives
- Essay
- The regularities money obeys