Short Essay on the Gresham’s Law

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Gresham’s law, in its original form, applies only to debased coins of monometallic system (i.e., gold standard). But, the law can, however, be extended to all forms of monetary standards:

1. Under Monometallism:

Under monometallism (for example gold standard), the old and worn out coins are regarded as bad coins and full-weight coins are considered as good coins. According to Gresham’s law, the old and worn out coins drive new and full- weight coins out of circulations.

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2. Under Bimetallism:

Under bimetallism (generally a system of gold and silver coins), coins of over­valued metals are considered bad money and coins of under-valued metal as good money.

Thus, according to Gresham’s law, the over-valued coins will drive under-valued coins out of circulation.

3. Under Paper Standard:

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Under paper standard, if both standard coins of superior metal and inconver­tible paper notes are in circulation, the metallic coins will be good money and paper notes will be bad money. Thus, paper notes will drive out standard coins from circulation.

Thus, Gresham’s law is a general law which can be applicable in different forms of monetary standards. Marshall presented a gerneralised version of the law: “Gresham’s law is that an inferior currency, if not limited in amount, will drive out the superior currency.”

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