Charles Hugh Smith – Rather suddenly, the state issued fiat currency bolivar lost 99% of its purchasing power.
Gresham’s law holds that “bad money drives out good money,” meaning that given a choice of currencies (broadly speaking, “money” that serves as a store of value and a means of exchange), people use depreciating “bad” to buy goods and services and hoard “good” money that is appreciating or holding its value.
As this dynamic plays out, eventually there is little “good money” in circulation and the economy suffers accordingly.
Correspondent AK recently submitted an insightful discussion of Gresham’s law and bitcoin:
1: Discussions surrounding Bitcoin and Gresham’s law immediately devolve into a debate about historical formulation or wording of Gresham’s law. Gresham’s law includes the notion that one or several currencies must be accepted at a defined value under legal tender law. However, the wider economic phenomenon that “powers” Gresham’s law is a universal phenomenon that is independent of any particular legal or cultural context. Continue reading