When the price of a currency in terms of another currency is arbitrarily fixed by lawmakers, it leads to a shortage in the supply of the currency that is undervalued, while there is at the same time an over-supply of the currency that is overvalued. Gresham’s law is often expressed using the phrase “bad money drives out good money”, and is named after the 16th Century English financier Thomas Gresham. The economics of price controls, which predicts price ceilings and price floors to result in supply shortages and surpluses respectively, thus applies to currencies as much as it does to goods.
