Between the advent of cryptocurrencies as a legitimate medium of exchange and discussions about the BRICS countries’ plans for a new gold-backed currency, it’s clear that the introduction of new currencies is not a thing of the past. Because it is conceivable that two forms of money may circulate at the same time, you need to know about Gresham’s Law.

The core concept of Gresham’s Law is that when two forms of currency are present in the same system and have the same face value, people will hoard the more intrinsically valuable of the two and spend the less valuable currency. As a result, the less valuable currency will gradually push the “better” currency out of circulation (and into private holdings).

Or, as many often put it, bad money drives out good. Let’s look at this economic concept in more detail and why you should keep it in your informational back pocket.

What Is Gresham’s Law?

To put it even more simply, Gresham’s Law states that the more valuable currency pieces will tend to disappear from circulation in the presence of less valuable ones. However, the presence of two currencies in a system does not universally result in the phenomenon.

The key condition required to foster Gresham’s Law is, ironically, the law itself. To create appropriate conditions, the legal framework must require that both currencies be treated as equal in value, even though they are not intrinsically equal.

When that happens, people — who are, generally, not fools — hang onto the more valuable currency and spend the less valuable currency as often as possible. Over time, as people hoard more valuable currency, it becomes increasingly difficult to obtain in everyday transactions. In that case, the “bad” money is the one that ultimately dominates circulation.

Who Is Gresham, Anyway?

The often-asked question surrounding Gresham’s Law is one of the most basic: Who is Gresham?

The law’s namesake was Thomas Gresham, a 16th-century English merchant and financier who advised several British monarchs during his lifetime, including King Edward VI and Queen Elizabeth I.

In Tudor England, it was relatively common for monarchs to debase their currencies by reducing the precious-metal content of the British pound. Gresham observed that full-weight coins gradually disappeared from circulation during these periods, leading him to conclude that the public was deliberately hoarding the more valuable coins and spending only the debased versions—although both coins carried the same face value. These observations later led economists to associate the phenomenon with Gresham’s name.

Of course, we’ve seen this pattern occur both before and after its formal recognition. The Roman Empire repeatedly debased its currency over several centuries, and its citizens responded in kind. We know they did so because they left behind hoards of higher-value coins.

More recently, Gresham’s Law appeared in the United States in 1965. In that year, the U.S. Mint changed the composition of dimes and quarters, replacing their silver content with a copper-nickel alloy known as cupronickel — the material still used today.

When the change occurred, the 90% silver coins quickly disappeared from circulation. Today, pre-1965 American coins are considered collectible and remain largely in private holdings, often in the same places they were set aside decades ago.

Why People Hoard “Harder” Money

The ethical implications of the hoarding described by Gresham’s Law are beyond the scope of this discussion. However, this behavior is best understood as a rational economic response rather than speculation or emotion. Some of the reasons people tend to hoard “good” or “harder” money include:

• Intrinsic or melt value — Regardless of legal tender rules, coins containing gold or silver have intrinsic value since precious metals have historically retained value across many cultures and long time periods.
• Preservation versus spending — Hoarding “good” money prevents the loss of underlying metal value that would occur if it were spent at face value. In practical terms, spending harder money means surrendering additional value beyond the nominal price of a transaction.
• Long-term mindset — Even without formal economic training, many people intuitively understand that scarcer assets are worth preserving. Durable commodities with intrinsic value tend to be viewed as better stores of wealth than easily replaceable or inflated items.
• Historical evidence — As outlined above, this behavior has repeated itself across numerous societies and eras. Gresham’s Law describes a recurring pattern that emerges when multiple forms of money coexist under fixed legal exchange conditions.

Summary & Final Thoughts

While gold and silver no longer serve as circulating currency in most modern monetary systems, the logic behind Gresham’s Law still surfaces in different forms. From one perspective, fiat currency can be viewed as “bad” money insofar as it lacks intrinsic commodity value.

That does not mean fiat currency is worthless. Its value derives from the issuing government’s economic stability, legal framework, and relative demand compared to other currencies.

In periods of inflation or monetary uncertainty, however, many investors return to forms of “good” money, such as precious-metal bullion. Over long-time horizons, many would rather hold $100 worth of gold than $100 in paper currency.

If you’re interested in accumulating “good” money as part of a long-term strategy, we offer a wide range of gold and silver products to help you get started.