Gresham's Law
Gresham’s law is that bad money drives out good when both are legal tender at a fixed rate: the overvalued coin circulates, the undervalued one is hoarded or exported.
Definition
If two monies have a legal parity that differs from the market ratio, people spend the overvalued (bad) and keep the undervalued (good). It requires a fixed exchange rate between the two, not a floating choice of media.
Why it matters
It still shows up in dollarization, dual-currency regimes, and ‘stablecoin vs deposit’ choices when one is implicitly guaranteed and the other is not.
Case
19th-century bimetallism and 20th-century dual-rate EM systems. In crypto, a depegging ‘stable’ token can flood venues while the still-good reserve asset is withdrawn — a cousin, not a twin.
How to read it
Confirm there is a binding official rate. Without it you just have two prices, not Gresham.
Key papers
Landmark references with real publisher or arXiv links — not token-overlap noise.
- Gresham's LawDutu, Nosal, Rocheteau · 2005 · Cleveland FedModern statement of when the law applies.