Thier's Law

Thier's Law is essentially the opposite of Gresham's Law, which states that "bad money drives out good money." It can be summarized as:

Thier's Law: Good money drives out bad money.

Here's a breakdown of the concept:

Bad money: This refers to currency with a declining value due to inflation or other factors. It loses its ability to store value and becomes less useful as a medium of exchange.

Good money: This refers to currency that holds its value and is readily accepted in transactions. It has a stable purchasing power and is trusted by users.

How Thier's Law works:

When a currency experiences hyperinflation, its value plummets and it becomes "bad money." People will naturally try to hold onto any "good money" they have, refusing to spend it and opting for alternative means of exchange like barter.

As "bad money" becomes increasingly worthless and unusable, it eventually disappears from circulation. People prefer to use "good money" for transactions, pushing out the "bad money" completely.

Important points to remember:

Thier's Law and Gresham's Law are not mutually exclusive. They represent different stages of a currency's decline. Gresham's Law applies when bad money starts replacing good money, and Thier's Law applies when good money completely displaces bad money.

Thier's Law is not always a smooth process. It can take time for "bad money" to completely disappear, and the transition can be disruptive to the economy.

Legal tender laws, which require businesses to accept the local currency, can complicate the picture and delay the full effect of Thier's Law.

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