Gresham’s Law in Australia: Why Bad Money Still Drives Out Good (2025 Guide)

Gresham’s Law—the centuries-old principle that “bad money drives out good”—isn’t just a relic of economic textbooks. In 2025, as Australia faces inflationary headwinds, digital currency debates, and shifts in everyday spending, Gresham’s Law is more relevant than ever. But what does this actually mean for your wallet, your savings, and your financial future?

What Is Gresham’s Law—and Why Should You Care?

Gresham’s Law originates from the 16th-century financier Sir Thomas Gresham, who observed that when two forms of money are in circulation, the one perceived as less valuable (“bad money”) tends to dominate daily transactions, while the more valuable (“good money”) is hoarded or disappears from use. This principle isn’t just historical trivia—it’s an ongoing force shaping how Australians use cash, coins, and even digital assets.

• Classic Example: In the 1960s, Australia replaced its silver coins with copper-nickel versions. People quickly hoarded the old silver coins, making them scarce in circulation.
• Modern Twist: Today, similar patterns can be seen with commemorative coins, rare banknotes, and the rise of digital wallets.

In practical terms, Gresham’s Law means that if you have two $10 notes—one pristine and collectible, one worn and ordinary—you’ll likely spend the worn one and keep the collectible. Multiply this behaviour across millions of Australians, and you see the law in action.

Gresham’s Law in 2025: Digital Dollars, Crypto, and Inflation

The Australian financial landscape is rapidly evolving. Here’s how Gresham’s Law is playing out right now:

• Digital vs. Physical Currency: The Reserve Bank of Australia (RBA) has ramped up trials of the digital Australian dollar (eAUD) in 2025. Many Aussies now prefer spending digital dollars for convenience, while physical cash—especially older or rare notes—is being stored or collected.
• Crypto and Stablecoins: With the introduction of new regulations on digital assets this year, some Australians are moving their value into cryptocurrencies or stablecoins, particularly during times of inflation. These digital assets are often held as a ‘good money’ alternative, while fiat currency is spent.
• Inflation’s Impact: With inflation lingering above the RBA’s 2-3% target, Australians are noticing their dollars don’t stretch as far. In response, some are spending lower-quality currency quickly, while saving assets they believe will retain value—like gold, foreign currency, or even digital tokens pegged to stable economies.

These behaviours echo Gresham’s Law: when there’s a choice, people hoard what they believe is more valuable and spend what’s less desirable.

Real-World Examples: From Silver Coins to Digital Wallets

Gresham’s Law isn’t just theoretical. Here are some recent and ongoing examples in Australia:

• Commemorative Coins: The Royal Australian Mint’s special editions often vanish from circulation as collectors snap them up, leaving only standard coins for everyday transactions.
• Cashless Economy: As tap-and-go payments overtake cash, Australians are holding onto rare notes and coins as collectibles or inflation hedges, while everyday spending shifts to digital forms.
• Gift Cards and Loyalty Points: Many prefer to spend soon-to-expire or lower-value points and gift cards first, while saving more valuable ones for later. This microcosm mirrors the principle of Gresham’s Law at work in daily life.
• Crypto Holdings: According to ASIC’s 2025 report, over 1 in 5 Australians now hold digital assets, often spending their AUD first and keeping crypto as a long-term store of value.

Why Gresham’s Law Still Matters—for Policymakers and Your Pocket

Understanding Gresham’s Law helps explain:

• Why certain coins and notes vanish from circulation
• How inflation influences spending and saving behaviour
• The psychology behind digital and physical currency preferences

For policymakers, these patterns matter for currency management, anti-money laundering efforts, and designing the future of Australia’s payments system. For individuals, recognising these trends can help you make smarter decisions about what to spend, what to save, and how to protect your purchasing power as the economy evolves.

The Bottom Line

Gresham’s Law isn’t just a historical quirk—it’s a living principle guiding the way Australians handle money in 2025. Whether you’re navigating inflation, considering digital assets, or just wondering why some coins disappear from your change jar, the lesson is clear: pay attention to what you spend and what you save. The type of ‘money’ you choose to keep says a lot about the times we live in.