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Why is this not true of the US dollar? In many countries with awful inflation rates, the government has to enact strict fines to prevent the dollar from taking
by chrisco255 6y ago
Why is this not true of the US dollar? In many countries with awful inflation rates, the government has to enact strict fines to prevent the dollar from taking the local currency's place.
- tgb 6y agoI think this is key to Gresham's law: government regulation of the value of the bad currency is what makes the bad currency be used. Without that legal protection, the bad money wouldn't be accepted. If it's required to be accepted, then you'd be a fool to not spend the bad money whenever you have it. So it seems that your observations are just an example of Gresham's Law.
- stblack 6y agoGresham's law: https://en.wikipedia.org/wiki/Gresham%27s_law https://en.wikipedia.org/wiki/Gresham%27s_law In many countries, you can exchange US$ for local currency, but not the other way around. That's by government decree. Yet the dollar is prized even though the decree says otherwise. In any case, there's much more than government decree factoring in what's bad money.
- tgb 6y agoWhat's the counter example here supposed to be? Gresham's law says that people want to get rid of (spend) their bad money and get paid by the good money (US dollars, here). But government regulations mean they have to take the bad money and so therefore only the bad money gets used. You're describing the same situation where bad money gets used even though everyone would prefer to take USD.
- stblack 6y agoOf course this is true of the US dollar. The US Dollar loses value over time. In this respect, it's no different than countries with awful inflation, just the inflation rate is lower. That's the very definition of bad money in Gresham's law.