Gresham's law(redirected from Bad money drives good money out of circulation)
Also found in: Dictionary, Thesaurus, Encyclopedia.
The theory that given two types of money with the same nominal value but different real values, the "bad" money will be spent while the "good" money will be hoarded. Strictly, the law only applies if the exchange rate between the two monies is decreed by the state, but it is sometimes invoked more broadly. While it does not always hold true, one example was the hoarding of U.S. coins in the 20th century as they gradually came to be minted with less valuable metals.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
Gresham's lawthe economic hypothesis that ‘bad’ MONEY forces ‘good’ money out of circulation. The principle applies only to economies the domestic money system of which is based upon metal coinage that embodies a proportion of intrinsically valuable metals such as silver and gold. Where governments issue new coins embodying a lower proportion of valuable metals, people are tempted to hoard the older coins for the commodity value of their metal content so that the ‘good’ money ceases to circulate as currency.
Collins Dictionary of Economics, 4th ed. © C. Pass, B. Lowes, L. Davies 2005