Gresham’s Law states that when a government (or governments) forcibly overvalues one money and undervalues another, the undervalued money will disappear, and the overvalued money will flood into circulation. The popular simplification of Gresham’s Law is simply “bad money drives out good money.” When a crappy currency impersonates a solid money (and they are equally valued), the solid money will usually disappear as people begin saving the solid money and spending the crappy currency.
Gresham’s Law hasn’t been violated since the dawn of money, and any time a government introduces a shaky currency to float alongside precious metals, the precious metals lie in wait (which is what happens when we invest in precious metals) until they revalue at a much higher price.
Just yesterday, the Venezuelan government finished a two-month-long process of repatriating (bringing back to their own country) 160 tons of gold that had been stored in offshore vaults in the United States and Europe. The Wall Street Journal had this to say:
This is an early sign of Gresham’s Law happening in modern society. When one country blinks and begins demanding return of its solid money, you know that the crappy currency will soon be shunned in favor of something than can weather any financial storm.