- the tendency of the inferior of two forms of currency to circulate more freely than, or to the exclusion of, the superior, because of the hoarding of the latter.
Origin of Gresham's law
- the economic hypothesis that bad money drives good money out of circulation; the superior currency will tend to be hoarded and the inferior will thus dominate the circulation
An economic principle proposed by an English financier, Sir Thomas Gresham, that bad money will drive good money out of circulation. For example, if the U.S. government minted silver dollars and then, at a later date, began to mint dollar coins out of cheaper metals, the public would hoard the silver dollars (possibly for later sale at higher prices) rather than use them as a medium of exchange: silver dollars would stop circulating.