Gresham's Law
Gresham’s law is a monetary principle stating that “bad money drives out good.” It is primarily used for consideration and application in currency markets. Gresham’s law was originally based on the composition of minted coins and the value of the precious metals used in them. However, since the abandonment of metallic currency standards, the theory has been applied to the relative stability of different currencies’ value in global markets. Origins The minting of coins provides the most basic example of Gresham’s law applied. In fact, the law’s namesake, Sir Thomas Gresham, was referring to gold and silver coins in his relevant writing. Gresham lived from 1519 to 1579, working as a financier serving the queen and later founding the Royal Exchange of the City of London. Henry VIII had changed the composition of the English shilling, replacing a substantial portion of the silver with base metals. Gresham’s consultations with the queen explained that people were aware of the chan...