Gresham's law signifies the economic principle that when a government overvalues one type of money (bad money) and undervalues another type of money (good money), there exists a natural phenomenon that the good money is driven out of the country's circulation. In simple terms, this can be said that when good and bad money circulate together as a legal tender, bad money drives good money out of the circulation. Let us discuss good money and bad money with an example.
The next corralito: Argentina defaults on its debt obligations and thus offers a lesson to the investors in US, Europe and Puerto Rico. Argentina didn’t even take 13 years to default on its debt for the second time in the modern age. The Economist calls the Argentina debt crisis as “an economic crisis beyond compare” and the “corralito” – basically a financial playpen of sorts – was the long-lasting result that saw bank accounts frozen and the Argentine peso reduced to rubble after a decade being pegged to the US dollar.
India’s telecom Industry, an oligopoly, has witnessed significant price-cutting since 2005. A metric called Average Revenue per user (ARPU), which defines a company’s per subscriber monthly revenue, has fallen from ₹370.01 in December’05 to ₹128.25 in December’13. This implies that either people lowered usage of cell phones drastically or call rates fell over the period. The former is unlikely in a growing economy and the phenomenon actually resulted due to aggressive price cutting by firms during this period.