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| Joined: | Mon Nov 21st, 2005 |
| Location: | California USA |
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Everyone has heard of [url=http://en.wikipedia.org/wiki/Gresham's_Law]Gresham's law,[/url] but practically no one understands it. Queen Elizabeth I's financial adviser was talking about a situation where two monies exchange at a rate fixed by law – for example, if both are legal tender and must be accepted in discharge of debt. Under these circumstances, people will try to pass on the "bad" money – the money whose value is suspect, either because of debasement or overissue – and hoard the money that's "good." But if the rate of exchange between the monies is free to fluctuate, it is the debauched currency that will depreciate and be driven out.