In the past
Two types of coins with different intrinsic values were in circulation.
The system makes good money disappear
What do people do when forced to accept two items of different value at the same price?
Forcing acceptance of coins of different fineness at the same nominal value → Currency choice, capital flight
Why Good Money Gets Hidden, Explained in 3 Minutes
1See it
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In the past
The rules said that both had to be accepted at the same face value.
In the past
People kept the better coins for themselves.
In the past
However, if they could be freely exchanged on the market, the good coins wouldn't simply disappear.
Today
Now, we choose which currencies or assets to hold.
Today
The safe haven has shifted from precious metals to the market.
Useful perspective
It's the result of many individuals making logical decisions. It's not about morals.
What to watch out for
Don't apply this idea to situations where the exchange ratio isn't fixed.
2In numbers
2types
Two currencies with different values. The system forced them to be accepted at the same value.
3What would you do?
You have two coins in your wallet: one with more silver and one with less. You can use either one at the store for the same value. Which one do you use to pay?
Pick one
The one with more silver
If you can use them for the same value, there's little reason to let go of the better one. People have always kept the better coins for themselves.
The one with less silver
That's the same choice most people would make. When the rules force both to be accepted at the same value, people keep the better ones.
This is the result of many individuals making logical decisions, not a moral issue. However, if they could be freely exchanged on the market, the better coins wouldn't simply disappear.
4Read more
Gresham's Law, with institutional conditions
Representative Historical Scenarios
- Gresham's LawOverview: the world Britain the 16th century
- Kipper und WipperOverview: the world Germany the 1620s
Contemporary Financial Scenarios
Situations from the book where this theme appears. We present a comparison with past situations for each case.
The Three Tests of Money — Uniformity, Elasticity, and Soundness
8-06 / Digital June 29, 2025 Basel
- Similarities
- Whether it can be redeemed at face value is the same question people asked daily when local banknotes circulated at a discount.
- Differences
- The entity imposing the test is an international organization, and the subject is a bearer instrument on a public ledger.
- Applications
- When reading discussions on digital money, apply the three tests in order. In particular, first ask: "Is it settled on the central bank's books?"
- Limitations
- The assessment of the report is as of June 2025. It is subject to change with regulatory developments. The design of the unified ledger is not covered.
Why can the receipt of banknotes not be refused?
1-02 / Modern Money Present. Tokyo. Bank of Japan Act, Article 46.
- Similarities
- The state's mark serves to reduce the recipient's doubt. Both the Lydian stamp and Article 46 perform the same function.
- Differences
- The stamp guaranteed the content of the material. The legal article does not guarantee the material, but guarantees its circulation and price stability.
- Applications
- If you wonder, "Is this money?", check the legal text to see who mandates its acceptance and what the limits of that obligation are.
- Limitations
- Legal tender concerns the extent to which yen-denominated debts can be settled with legal currency. This authority does not cover a shop's freedom to determine payment methods in advance, nor the freedom of pricing or using foreign currency. The twenty-coin limit is a value from Japanese law; it differs in other countries.
How to compare past and present
Similarities
When a system forces people to accept two currencies of different intrinsic value at the same nominal value, they will hoard the better one (if it can be freely exchanged on the market, it does not simply disappear).
Differences
In the past, the difference in fineness; now, the choice between currency and assets. The refuge has shifted from metal to the market.
Applications
Currency choice is the sum of individual rational decisions, not a matter of morality.
Limitations
⚠ When applying "Gresham's Law" to situations lacking the condition of a fixed exchange rate.
To go beyond "they are similar," we also describe the differences, what can be applied today, and where past examples should not be applied to the present (limitations).
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