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Cretiam Act (Greshams Law), an economist famous scientific law has had a role in the monetary systems known as the writer Sir Thomas Cretiam Queen of England adviser. This law is to the famous lousy money phrase expel good money from the market, so that in a country where trading two types of legal money being one of them poorly and the other good, the bad drive out the good from circulation between people, have noted Gresham this phenomenon in his country England whenever hit the money new to replace the old coin shop Mthath, where the new money is not soon disappear from circulation, and the reason for this, as long as the two types of money the same purchasing power make it free to choose the person to lead what it debt or repayments cash poor or the new currency it works the paid currency shoddy Mstbkie new currency has away from trading in the market, and not used in payments only bad currency, for the same reason shall be binding acceptance creditor, even if creditors refused and asked for the new currency to the work of law in reverse, so that it becomes the new currency is to expel the bad currency , good money and are typically used for several purposes including:
Foreign debt settlement.
Compactness.
Industrial purposes.
Conversion to the alloy.
It is situations in which this law is applied:
If you hit the new money to replace the old eroded the new money that will be weighing fully disappear from circulation to be used for the above purposes and thus remain only in poor circulation coins.
If you hit the new money include the amount of pure metal less than include it the old money that they be equally divided with nominal value. The old money start to disappear from circulation in the market, but Will you be the only new money, there have been such phenomena in the Middle Ages when the rulers Ascon money different weights less than the old weights whenever troubled economic conditions in their country.
If you find in circulation paper money and cheap as well as coins, the first expel the second of trading in the market. This phenomenon has spread during World War I when it was gold coins disappear whenever raised emissivity of cheap paper. It should be noted that as long as possible, paper Srvalencod metal key money, the value of this fund remain one, as it is not in fact there is only one coin is metal. And it's it's sometimes traded as a currency metal and sometimes as currency paper, if it is decided inability paper money Palmadenah exchange, the paper would soon no longer poor and disappear in front of metal that are good money.
If freedom of mintage available in both metallic gold and silver on the basis of certain legal rate, then this percentage has become does not agree with the commercial market prices, the coins metal that landed value in the market is not soon expel coins the other metal, has this phenomenon became popular in countries which followed the miners system
Largely referring to the common practice of “clipping” or “shaving” silver coins and passing them off at the same value, Gresham articulated the basic economic law that bad money drives out good money.
"When a government overvalues one type of money and undervalues another, the undervalued money will leave the country or disappear from circulation into hoards, while the overvalued money will flood into circulation."
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