What is the 'Gresham's Law'

Gresham's law is 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.

BREAKING DOWN 'Gresham's Law'

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.

RELATED TERMS
  1. Trillion Dollar Coin

    A trillion dollar coin is a theoretical coin that could be legally ...
  2. Mint

    The primary producer of a country's coin currency. The mint has ...
  3. Bullion Coins

    Coins made from precious metals that are generally used for investment ...
  4. Debasement

    1. To lower the value, quality or status of something or someone.2. ...
  5. Krugerrand Gold Coin

    A gold coin minted by the Republic of South Africa. Krugerrand ...
  6. Active Money

    The total value of coins and paper currency in circulation amongst ...
Related Articles
  1. Trading

    History Of Coinage In The U.S.

    From the barter system to commemorative coins, we look at the history of U.S. money.
  2. Investing

    Why Gold Has Always Had Value

    Gold has an allure and a price tag, but with no real intrinsic value, why do we consider it so precious and valuable? Explore the answer.
  3. Investing

    5 Best Bets For Buying Gold

    Gold is a desirable alternative for those looking to diversify risk. Discover your options.
  4. Trading

    The History Of Money: From Barter To Banknotes

    Money has been a part of human history for at least 3,000 years. Learn how it evolved.
  5. Trading

    The History Of Money: Currency Wars

    Find out how conflicts have changed the role money plays in our lives.
  6. Investing

    Should You Add Metals To Your Portfolio? (SLV, GLD)

    This study examines how various metals have performed over the last 10+ years, with analysis of whether you should consider investing in metals.
  7. Insights

    How Currency Works

    Currency offers key advantages over economies based on direct trade. It provides sellers with a broader market for their goods and services. It is also a durable asset for people to accumulate ...
  8. Investing

    Investing In The Metals Markets

    Learn the many options available for investing in the earth's chemical elements, such as gold, silver and rare-earth metals.
  9. Investing

    A Beginner's Guide To Precious Metals

    All that glitters isn't gold. Find out how to get started on your treasure hunt.
RELATED FAQS
  1. Can I invest in gold or silver with my Roth IRA?

    Learn how you can purchase gold coins and bars with your Roth IRA, or how you can diversify part of your assets by purchasing ... Read Answer >>
  2. What does it mean to invest in base metals?

    Learn what is means to invest in the base metals sector and how investors can take advantage of various investment strategies ... Read Answer >>
  3. What countries represent the largest portion of the global metals and mining sector ...

    Learn which countries have the largest mining production in the world and how precious metals are a significant source of ... Read Answer >>
  4. What other precious metals are there beyond gold and silver?

    Discover the other, lesser-known precious metals such as platinum and palladium, which are more tied to the industrial economy ... Read Answer >>
  5. What economic indicators are most useful when investing in the metals and mining ...

    Learn about the different economic indicators that investors use to determine if it is a good time to invest in the metals ... Read Answer >>
  6. What is continuously compounding interest?

    Read a quick explanation of continuously compounding interest rates, why compounding matters and how to calculate the continuous ... Read Answer >>
Hot Definitions
  1. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
  2. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  3. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  4. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
  5. Job Market

    A market in which employers search for employees and employees search for jobs. The job market is not a physical place as ...
  6. Yuppie

    Yuppie is a slang term denoting the market segment of young urban professionals. A yuppie is often characterized by youth, ...
Trading Center