Economists widely observe a principle called Gresham's Law, which states that bad money always drives out good money from active circulation within a given market.

When a Coin Is Worth More Than Its Price

A coin has two kinds of value. Its face value is the amount stamped on it; its metal value is what its silver or gold is worth as a commodity. Gresham’s Law describes what can happen when authorities or market rules require two kinds of money to pass for the same amount, even though one contains more valuable metal.

Suppose a silver-rich coin and a cheaper, debased coin are both accepted as one dollar. Paying with either settles the same bill, but the silver-rich coin is worth more if melted down or sold for its metal. People therefore have a reason to spend the cheaper coin and save, export, or melt the better one. The difference in value changes which coins people are willing to part with—not the amount the shopkeeper is required to accept.

The Rule That Makes the Difference

The pattern depends on the coins being treated as equal in ordinary payments. If sellers can charge more for the less valuable coin, or refuse it, the price difference can show up directly instead of prompting people to hoard the better coin. Gresham’s Law is therefore most useful for understanding money forced to circulate at a fixed exchange rate, not every situation in which one currency seems weaker than another.

As the better coins vanish from everyday transactions, the money people encounter becomes less valuable by its material content, even though the stamped amounts have not changed. That can undermine confidence in the currency and encourage people to seek payment in the better coin, foreign money, or goods. A seemingly small decision—keeping one coin and handing over another—can gradually reshape what is available to spend.