Friday, 26 August 2011

Back to Basic - Gresham's law

Gresham's law stated that "which states that when government compulsorily overvalues one money and undervalues another, the undervalued money will leave the country or disappear from circulation into hoards, while the overvalued money will flood into circulation." This is explained in simplicity by "Bad money drives out good", but is more accurately stated: "Bad money drives out good money if their exchange rate is set by law."

His theory is based on the argument on the current practise of legal tender coin issued by various sovereign states that shows little difference between its nominal value (the face value of the coin) and its commodity value (the value of the metal of which it is made, often precious metals, nickel, or copper.) On the other hand, "bad" money is money that has a commodity value considerably lower than its face value and is in circulation along with good money, where both forms are required to be accepted at equal value as legal tender.

Something to ponder about over the weekend on the true intrinsic value of your wealth


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