Gresham's Law and the Value of Money Gresham's law states that bad money drives out good, meaning people will hoard valuable currency and use less valuable currency for transactions. The value of paper money is based on trust in the government rather than a commodity like gold, which acts as a limiting mechanism to prevent governments from printing too much money.

Examples of Gresham's Law in Action Historically, many countries have experienced hyperinflation or economic collapse due to their fiat currencies losing value. People may start hoarding coins with higher commodity values (such as silver) if they lose faith in paper currency. In fact, some individuals already buy bags of old silver coins called "junk silver" as an investment against potential future inflation or economic instability.