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A drift formulation of Gresham's Law

Reginald D. Smith

posted on 23 January 2012

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In this paper we analyze Gresham's Law, in particular, how the rate of inflow or outflow of currencies is affected by the demand elasticity of arbitrage and the difference in face value ratios inside and outside of a country under a bimetallic system. We find that these equations are very similar to those used to describe drift in systems of free charged particles. In addition, we look at how Gresham's Law would play out with multiple currencies and multiple countries under a variety of connecting topologies.