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Why "bad money" always chases the good money out of your wallet
💡 When law forces two monies to trade at the same value, people spend the overvalued one and hoard the undervalued one — so the "worse" money is what you actually see in circulation.
Imagine two identical-looking coins, both worth $1 at the shop. One is solid silver; the other is cheap alloy. Which do you spend, and which do you quietly keep? Almost everyone spends the junk coin and hoards the silver one. Multiply that choice by millions of people, and the good coins vanish from circulation entirely. This is Gresham's Law, usually summarized as "bad money drives out good."
The key condition is a fixed exchange rate set by law: the government forces both coins to be accepted at the same face value. Because you're compelled to treat them as equal in trade, you rationally offload the one that's overvalued (the alloy) and stash the one that's undervalued (the silver, worth more melted down). The "bad" money wins the fight for circulation precisely because it's worth less.
History is full of this. Roman emperors quietly cut the silver in their coins, and citizens hoarded the older, purer ones. In 1960s America, when silver dimes and quarters were replaced by copper-nickel versions of the same face value, the silver coins swiftly disappeared into drawers and melting pots. The pattern repeats whenever law pretends two unequal things are equal.