Gresham's Law

Gresham's Law, also known as the "law of the survival of the inferior currency," is an important principle in economics. It states that under a bimetallic monetary system, when two forms of money with different intrinsic values but the same face value circulate simultaneously, people tend to hoard the "good money" (with higher intrinsic value) and use the "bad money" (with lower intrinsic value) for transactions and payments. Over time, the good money gradually disappears from circulation, while the bad money floods the market—resulting in the phenomenon where bad money drives out good. This law reveals how information asymmetry and rational economic behavior influence market outcomes, highlighting the importance of currency quality for the stability of an economic system.

1. Applies to markets characterized by information asymmetry and behavioral bias.
2. Highlights the importance of quality standards and regulatory oversight.
3. Extends beyond currency to include goods, services, and even labor or talent markets.
4. Warns individuals to be cautious about the hidden risks posed by "bad money" when making choices.
5. Reminds policymakers to pay attention to quality issues in markets and prevent the breakdown of virtuous cycles.