Gresham's Law

A monetary principle stating that "bad money drives out good." In currency valuation, Gresham's Law states that if a new coin ("bad money") is assigned the same face value as an older coin containing a higher amount of precious metal ("good money"), then the new coin will be used in circulation while the old coin will be hoarded and will disappear from circulation.

Coins were first made with gold, silver and other precious metals, which gave them their value. Over time, the amount of precious metals used to make the coin decreased because the metals were worth more on their own than when minted into the coin itself. If the value of the metal in the old coins was higher than the coin's face value, people would melt the coins down and sell the metal. Similarly, if a low quality good is passed off as a high quality good, then the market will drive down prices because consumers won't be able to determine the good's real value.

Investment dictionary. . 2012.

Look at other dictionaries:

  • Gresham's law — is an economic principle that states: When a government compulsorily overvalues one type of money and undervalues another, the undervalued money will leave the country or disappear from circulation into hoards, while the overvalued money will… …   Wikipedia

  • Gresham's Law —    Gresham s law is based on the theory that if two currencies of the same nominal value but different intrinsic value are in circulation at the same time, the currency with the lower value will eventually drive out of circulation the money with… …   Dictionary of eponyms

  • Gresham's law — [gresh′əmz] n. [after Sir Thomas Gresham (1519 79), Eng financier, formerly thought to have formulated it] the theory that when two or more kinds of money of equal denomination but unequal intrinsic value are in circulation, the one of greater… …   English World dictionary

  • Gresham's law — Econ. the tendency of the inferior of two forms of currency to circulate more freely than, or to the exclusion of, the superior, because of the hoarding of the latter. [1855 60; named after Sir T. GRESHAM] * * * Observation that bad money drives… …   Universalium

  • Gresham's Law — n. the tendency for money of lower intrinsic value to circulate more freely than money of higher intrinsic and equal nominal value. Etymology: Sir T. Gresham, Engl. financier d. 1579 * * * Gresham s law see law n.1 17 c (d) …   Useful english dictionary

  • Gresham's law — Gresh′am s law′ n. bus the tendency of an inferior currency to drive a superior currency out of circulation because of the hoarding of the latter • Etymology: 1855–60; after Sir T. Gresham …   From formal English to slang

  • Gresham's law — /ˈgrɛʃəmz lɔ/ (say greshuhmz law) noun the tendency of the inferior of two forms of currency to circulate more freely than, or to the exclusion of, the superior, because of the hoarding of the latter. {from Sir Thomas Gresham, 1519?–79, English… …   Australian English dictionary

  • Gresham's law — noun Etymology: Sir Thomas Gresham Date: 1858 an observation in economics: when two coins are equal in debt paying value but unequal in intrinsic value, the one having the lesser intrinsic value tends to remain in circulation and the other to be… …   New Collegiate Dictionary

  • Gresham’s Law —  is that bad money drives out good ; attributed to ir Thomas Gresham (1519–1579), British financier …   Bryson’s dictionary for writers and editors

  • Gresham's law — n. (Economics) principle stating that bad money drives good money out of circulation because a currency of lower inherent value will be used money one of higher inherent value will be stockpiled (named after Thomas Gresham) …   English contemporary dictionary

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