Gold, Gresham’s Law & the Dong

by Ben Traynor BullionVault Thursday, 28 April 2011 What happens when people actively shun their official currency...? GOVERNMENTS are often tempted to live beyond their means. Today, that means national debts and quantitative easing. But a few hundred years ago, it meant debasing coinage. Silver and gold coins would be 'clipped' – with a tiny quantity of their metal shaved off the edge every time they passed through government hands – or they would be minted with a lower precious metal content than their face value stated. This would enable the monetary authorities to produce more coins for the same amount of bullion, increasing the government's spending power in the marketplace. The net result was that coins with identical face values did not necessarily hold the same commodity value. And this often led to a rather interesting phenomenon. When people knew there were both 'good' and 'bad' coins floating around, they tended to spend the bad and hang onto th...