Advisors Capital Management/Dr. Alan Greenspan/11-2-2022

“When the U.S. dollar was first anointed the world’s reserve currency by the Bretton Woods Agreement in 1944, it was fully backed by gold. Now that the global financial system has transitioned fully to fiat currencies, examples of Gresham’s law in its traditional formulation are rare. No longer are there difference in intrinsic (commodity) value causing one currency to be favored over another. However, foreign exchange rates do reflect some of the forces Gresham originally recognized at work. The present strength in the U.S. dollar in relation to the other traditional reserve currencies is one example of market participants choosing to hoard what they view as ‘good money’ – or at least better money.”

USAGOLD note: Greenspan sees the dollar as the best of a bad bunch and, therefore, the beneficiary of Gresham’s Law in the current fiat money mix. The former Fed chairman is a long-time advocate of gold ownership for private citizens as the preeminent store of wealth – the ultimate beneficiary of Gresham’s Law in the context of fiat money. Coincidentally, we alluded to Gresham’s Law yesterday with respect to the surprisingly strong demand for gold among central banks. Though Greenspan sees the dollar enjoying a monetary tailwind in 2023, he also sees consequences overseas and among US multinationals. “Take heed,” he concludes, “Gresham’s law can wreak havoc on currencies…”