Whose says this statement.This law was propounded by sir Thomas Gresham Elizabeth I in the 16th cen tury in Britain. With a view to reform the currency system, the Queen tried to replace bad coins of the previous regime by issuing new fell-weighted coins. But to her dismay, as soon as new coins were put in circulation, they diapered & as such old coins continued to remain in circulation. Queen Elizabeth'sought the advice of sir Thomas Greshamh, who provided his explanation in the farm of law which states, bad money tends to drive good money out of circulation." We shall illustrate this law with the help of an example.

Suppose India is on bimetallism, wit the rupee connected to gold & silver in the ratio of 1:15. This ratio between gold & silver is the official rate & is known as the mint par. But in the bullion market outside, where gold & silver are bought & sold, the ratio between the two metals may or may not be the same as the mint par, since the market prices will reflect the actual demand & supply conditions of the two metals at any time. Suppose, supplies of silver in the bullion market are larger due to the discovery of new mines. The price of silver in terms of gold will come down in the bullion market- the ratio being. say, 1:17. This means that the value of gold has appreciated, while the value c silver has depreciated. Since the mint rate is fixed, it is profitable for a specula tor to buy silver in the bullion market against gold. I every transaction, the speculator can get a profit of 2% of silver. Thus, silver will be bought from the market & sold to the mint. Besides, people will pay govt. dues only in depreci ated silver. Everywhere silver will be used & the costly gold disappeared from circulation.operation of law..................