Gresham’s Law

Sir Thomas Gresham was a financier in the 1500’s in England. Gresham had noticed that King Henry the VIII had replaced the silver in the British Shilling with base metals. The people had also noticed this change and would separate the coins. The original coins “good money” would be saved and the new coins “bad money” with the lower silver content, would be spent. Gresham’s Law states that overvalued “bad money” will drive undervalued “good money” out of circulation.

Today, most countries that issue currencies do not issue coins with meaningful amounts of precious metals. Most of the money is in a digital format. Debasement therefore occurs differently. Instead of removing silver or gold from coins, debasement is accomplished through an increase in the total amount of currency. By increasing the quantity, the value of each unit becomes worth less (and eventually worthless).

When I think of this in light of cryptocurrencies, it leads me to the conclusion the Bitcoin and any other coin viewed as being better money than the current alternatives, will be accumulated and are less likely to be spent. This may be true of more than one cryptocurrency and it is likely to continue to change as the currencies compete with one another. This was the concept, this move to private money, Nobel laureate Friedrich Von Hayek described in is his book “The Denationalization of Money”.