Gresham's Law

This concept is used in the context of theEconomyand public finances.

According to this law, if there are two different types ofCurrencyin circulation, the "coin
"bad" (the weakest) will finally drive the good out of circulation. This law was
formulated by the Englishman Thomas Gresham (1519-1579), who, as a result of a
study that was conducted on monetary patterns and systems, concluded that
that has historical validity.
The good coin is withdrawn from circulation and hoarded by itsValueintrinsic.
Let's conserve the good material and spend the other one.
GRESHAM'S LAW
Law formulated by Sir Thomas Gresham in the 16th century, which holds that
theCurrencyof lower intrinsic value tends to displace that of higherValuein the
circulatory process.
The story of theMoneytends to confirm the veracity of this theory.
Gresham's Law
The bad coin drives the good one out of circulation. If the coins were equal
liberating power the public treasured theCurrencywith higher fine metal content.
GRESHAM LEY
Lawintroduced into the world of theeconomyby Macleod in 1858 (in his work Elements ofpoliticseconomic)
according to which "thecurrency"bad money drives out good." Sir Thomas Gresham (1519-1579) - of whom
this popularlawtook his name - he was a rich manmerchantyeconomistEnglish had noticed this.
phenomenon three centuries earlier. This influential man ofbusinesss, counselorfinancialof Her Majesty the Queen of
England was a good connoisseur in itstimeof thelawethe rules that govern the functioning of
themarkets financialsand the formation ofexchange rate; at the end of his life he donated hisgoodsso that it is
build itBagfrom London, a University will be founded and other projects will be undertakenactivityes deinterestcultural.

Lawmonetary according to which thecurrencymetal oflowquality) displaces for the good. Gresham's law.

The law of Gresham

In the 16th century, there lived an English banker and merchant named Thomas Gresham. In his name
the so-called 'Gresham's law' was baptized, which states that when there are two in a system
coins, a good one, that is, with a stable value, and another bad one, that is, with a tendency to
devalue, people pay with the bad currency and hoard the good currency, so that the bad
remove from circulation for good. Indeed, if we had distrust in the colon, we would tend to
keep the other currency in national circulation - the dollar - and we would make our payments in colones,
which we already saw happen in the eighties.

Herberth Simon, Nobel Prize in Economics for work done on intelligence and the
human actions, metaphorically applied "Gresham's law" to point out that, when we
we face the distribution of the time we dedicate to the tasks we have to do,
structured issues take our attention away from unstructured ones. A matter
Structured is one for which I know the steps to take in order to face it. For example,
if we have to go to the supermarket to buy groceries, we make a list, choose a day and time, we
we move there, we take an orderly tour through the gondolas, we pay, we ask for
A boy who brings us the bags, we go back home, we put the products in the refrigerator.
perishables and in the pantry the non-perishables&...; As seen, the activity of going shopping
It is structured. Instead, meeting with some friends to get their opinions on some ideas that
we have been maturing it is an unstructured activity. We need to put in black and white the
ideas, we need to decide when and where, we need to consult them if that date, time and
place, you need to have an alternative date in case someone can't make it. For that reason, never
we have to pass by the supermarket saying 'one of these days I'll pass by here' and yes it happens to us with
I have been thinking for days about asking you to meet up with friends and say to them
"Let's sit down and talk about some ideas that I would like to consult you on." The structured activities are
they take time and energy away from unstructured activities. That's why, in companies, there are no
time to reassess the course, to make plans, to ask ourselves carefully how we
is going and where we should aim. Instead, checks are always signed, they
Converse with suppliers, attend to customers, and carry out tasks outside the company.

Simon says that structured deals always have 'lawyers' that prevent us
postpone them. The father who is talking to his son about his school performance -activity
not structured - and to whom his wife shows the notice that the card expires tomorrow
credit, interrupts the attention or the meeting with the son. The secretary who peeks through the door.
and with his gestures he tells us that we need to sign some letters, he pulls us out of concentration with the
we were thinking about the competitive advantages of our company.

Every entity of action -government, business, association, or individual- needs to take breaks in
path to examine where it is going and where it wants to head. The stop on the way is a
parentheses in the routine. It involves setting aside one day a month in the company so that, along with
four or five senior executives, we dedicate ourselves to thinking and taking note of matters not
structured. In private life, the halt on the road can take the form of a holiday in
those who neither read newspapers nor watch television, but instead, confined in a pleasant corner, with some
sheets for taking notes, we prepare a list of things that we find very important
to carry out something we have been postponing for so long. Time has that strange ability to flow without
make noise. The stop on the road could save us from unpleasant surprises.

Gresham's Law

The definition of Gresham's Law indicates that it is an economic principle that states that 'bad money'
"expels good money." This law states that if a new currency ("bad money") has the same nominal value
that an older coin, but with a higher concentration of precious metals ('good money'), people
will use the new currency while accumulating the old currency, which eventually disappears.

Gresham's Law Explained

Let's take a look at a bit of history to understand what Gresham's Law is. In the past, coins
they were made ofgold, silverand other precious metals. The value of coins depended on the material with which
they were elaborated. Over time, the amount of precious metals used in coins decreased due to
that metals were more valuable by themselves than used in minting. If the value of the metal in a coin
In ancient times, it was higher than its nominal value, people would melt their coins and sell the metal. Similarly, when

a low-quality product is passed off as a high-quality one, the market drives prices down because the
consumers cannot determine the true value of the good. This is an important concept to understand
the meaning of Gresham's Law.
 Gresham's Law

GENERAL LINES
Translation into Spanish done by me of theLinkfrom Wikipedia in English.

The law of Gresham is usually stated as: 'bad money drives out good,' but it is more accurate to say
that 'bad money drives out good if the exchange rate is established by law.'

This law applies specifically when there are two forms of money in circulation and both are legal tender.
payment and have similar face values for economic transactions. The artificially overvalued currency
tends to remove the degraded currency from circulation and this is a consequence of price control.

Gresham's law is named after Sir Thomas Gresham (1519 - 1579), an English financier during the dynasty
Tudor. However, the law had already been established by Nicolaus Copernicus, so in some countries of Central Europe
and from the east is called the Copernican Law. The phenomenon had been previously noted in the 14th century by Nicholas of
Oresme[we already know that this authorship is called into question].The fact that bad money is used instead of good money
it was also included in the worksThe FrogsofAristophanes,around the data from the end of the 5th century BC.

GOOD MONEY AND BAD MONEY

Good money is money that has a small difference between its nominal value (the face value) and its intrinsic value (the
value del metal with what is fact, a tripe metals precious, bronze o copper).

In the absence of laws establishing the legal tender, the currency will be exchanged somewhat above its value.
bullion market. This is not a purely theoretical result but can be observed with coins of
collection made of precious metals such as the South African Krugerrand, the American Gold Eagle or even the María
Theresa thaler (Austria). Coins of this type are of known purity and are made in a convenient way.
to transport them. People prefer to trade in coins rather than in anonymous pieces of precious metals, so
that people attribute more value to coins. And there are also demands from coin collectors, and this activity
is frequently profitable.

On the other side, 'bad' money is money that has a real value considerably lower than its face value and is in
circulation at the same time as the 'good' money, given that both currencies are required to be accepted for
same value how value legal.

In Gresham's time, bad money included any coin that had been degraded. The degradation was done to
less precious metal was incorporated than legally specified in the issuing body,
coin minting, generally by making an alloy with a base metal. The public could also debase
the coin, reducing the weight of the small metal through scratches. Other examples of degraded currency are the
coins falsified made of metal base.

In the case of scratched, scraped or counterfeit coins, the real value was reduced through fraud, since the face value
remained at the previously highest value. On the other hand, in the case of a debased currency by the issuer
governmental, the real value of the currency was often openly reduced, while the nominal value of the
coins were established at the superior level set by the laws.

EXAMPLES

Silver coins circulated widely in Canada (until 1968) and in the USA (until 1965 and 1971). However
These countries debased their coins by switching to other metals when the value of silver was higher than the face value.
Silver coins disappeared when citizens held onto them to obtain the highest value.
of the metallic content present or future regarding face value, using new coins in daily transactions.
By the end of the 1970s, the Hunt brothers dominated the silver market worldwide and took the
prices far above their historical levels, intensifying the extraction of silver coins from the market.
the same process occurs today with the copper content of coins such as the Canadian penny prior to 1997 and the
one cent coin of the USA, and even with coins made of less expensive metals like coins
of steel from the India.

Even some banknotes can suffer from Gresham's law, an example can be the recent change of paper banknotes.
to polymer (plastic) banknotes in Nicaragua.

THEORY

Gresham's law states that any monetary circulation consisting of 'good' and 'bad' money (is required
that both forms are accepted at the same legal value by the government) will soon be dominated by bad money. This
It's because people, when spending their money, will give away the bad coins, keeping the good ones for themselves. The laws
that establish the legal course of the currencies act as a price control. In this case, the overvalued currency
artificially is preferred for exchange, because people prefer to save it instead of exchanging it for the
currency artificially degraded.

Let's consider a customer purchasing an item for 5 pence and having several six pence coins.
some of these coins are more worn while others are less so, but legally, they all have the same value.
The customer will prefer to keep the best coins and will offer the shopkeeper the most degraded ones. To give back the change, the
the shopkeeper must return a penny, and is completely justified in giving the most degraded one. Thus, the coins
The currencies involved in this transaction will tend to be the most devalued available for both parties.

If 'good' coins have a face value lower than their metal content, individuals may be motivated to
melt them down and sell the metal for its intrinsic value, even if such destruction is illegal. As an example, consider the
half dollar coin of the United States, which contained 40% silver. With the launch of the half dollar coin
dollar of 1965, which was legally required to be accepted at the same value as the previous half dollar at 90%,
this quickly disappeared from circulation, while the newer and devalued currency remained in use.
When the price of the silver ingot continued to rise above the face value of the coins, many of the as
previous half dollar coins were melted down. Starting in 1971, even the coins that contained 40% of
silver they were melted.

The same happened in 2007 in the United States, when the increase in the price of copper and zinc led to
United States government to prohibit the casting or export of one and five cent coins.

In addition to being melted down for its metallic value, money that is considered 'good' tends to leave the economy at
Through their international trade, international merchants are not bound by the laws like citizens are.
from the issuing country, so they will make a better offer for the 'good' coins than for the 'bad' ones. The good coins
they will abandon their home country to be part of international trade, leaving its legal system behind
and leaving behind the bad coins. This happened in Great Britain during the years of the gold standard.
Gresham's law

One of the consequences of monetary manipulation, which was heavily used by kings in the Modern Age,
the good currency is replaced by the worse quality currency in economic transactions. To this
The monetary phenomenon is known as Gresham's law.

Sir Thomas Gresham, who was an important financier and merchant in his time, was actually the founder of
the Royal Exchange of London and advisor to Elizabeth I of England. Gresham realized that, in
all the transactions I was carrying out, people preferred to pay with the weakest currency of the moment and
stay with the strongest one to dedicate it to savings, since the strong currency had more intrinsic value than
the weak one having more noble metal. Gresham observed the fact but did not make a formulation.
theory of it. It was not until the late 19th century that this economic principle began to be referred to as
this way.

Gresham's law states that bad money (low noble metal content) drives out good money (high noble metal content).
noble metal content) because economic agents tend to use bad currency for payments
internals while they treasure the good, melt it or use it in international payments since foreigners
they do not accept bad currency as a means of payment. Therefore, the currency that will be used in the country will be
the bad one since the good one will be taken out of circulation because no one will be willing to use it for internal payments. The

the use of bad currency within the country causes the national currency to depreciate and worsens the exchange rate,
having this long-term dire consequences for the economy of a certain territory.

This law states that bad money drives out good money and removes it from the market. For example, in a certain
In Tanzania, cattle were used as money in the past. Soon people realized that in the
transactions only used the thinnest and sickest animals. The reason was very simple: the values of
Goods and services were expressed in number of heads, without distinguishing between good and bad livestock. Since
that livestock has an intrinsic value for meat, milk, leather, and for transportation services that was greater
it is convenient to pay with bad cattle and keep the good. The same will happen in the Modern Age with the
currency because the prevailing currency at the time is a commodity currency, meaning it had a high value
intrinsic. Therefore, a person who had two coins of identical nominal value will make transactions with
the one with less noble metal, since it is intrinsically less valuable.
 What is the International Monetary Fund (IMF)?
It is clear that to achieve fluency in global trade and, in general, economic evolution
a more suitable system of international monetary and payment systems is necessary for the group of countries
that ensures stability and transparency, a task to which the Fund has been devoted
International Monetary Fund, created in 1944 at the famous Bretton Woods Conference (the States
United). Currently, 173 countries are members, including those from Eastern Europe that
previously belonged to the socialist camp (some of which would have been admitted even
before the change of political regime). The same happens with the Republic of China. Regarding the
the former Soviet Union was admitted as a special member at the end of 1991 and once the
The states that constituted it redefined their relationship in the Commonwealth of Independent States.
14 Soviet republics became members of the Fund since September 1992. Another
A significant adhesion has been that of Switzerland, a country that had traditionally refrained from requesting
its admission. Thus, the FML has become an organization of almost universal affiliation.

The functions of the IMF fully identify its position in the economic environment.
world

Foster international monetary cooperation by providing advice to countries on the matter

of international monetary management.

Promote exchange rate stability by ensuring that countries maintain exchange rate regimes.
ordered, that is, preventing them from altering the global exchange management by varying competitively
exchange rates.

Help establish a multilateral payment system for ongoing transactions that are carried out
among member countries and promote the elimination of exchange restrictions that hinder
expansion of world trade.

Infusing confidence to the member countries by making available to them, temporarily, for a short time.
term, and with the appropriate guarantees, financial resources from the Fund, to give them the opportunity to
correct imbalances in its balance of payments, without resorting to measures that are detrimental to
national or international prosperity.

To seek that an undue prolongation of balance of payments imbalances does not occur
the member countries.

Ensure adequate availability of international liquidity by complementing with the issuance of

special drawing rights (SDR) the management between countries of accepted payment methods
International. The special drawing right is a unit of account, created and assigned to each country.
by the Fund in proportion to the size of their economy, and that countries can use to make themselves
payments, debiting and crediting your account in the Fund. Its value is established based on the average
of the value of a basket of internationally accepted currencies.
FUNCTIONS OF THE INTERNATIONAL MONETARY FUND

Through the supervision it carries out of the economic policy of the countries
Members, the International Monetary Fund primarily examines the overall set of results.
economic, a concept that is often known as 'macroeconomic results'.

This includes total spending (and its main components such as consumption and investment spending.
business), product, employment and inflation, as well as the country's balance of payments, that is,
external position represented by a country's transactions with the rest of the world.

The International Monetary Fund primarily focuses on macroeconomic policy.

to know the policy measures related to the public budget, the management of taxes
of interest, money and credit, and the exchange rate—and the policy of the financial sector, which
understands the regulation and supervision of banks and other financial institutions. In addition, the
The International Monetary Fund pays attention to structural measures that influence
in the macroeconomic results, including labor market policy that impacts on
employment and wage behavior. The International Monetary Fund advises the
member countries on how the measures applied in these can be improved
sectors to achieve objectives more effectively such as a high level of employment, low
inflation and sustainable economic growth, that is, the type of growth that can
to maintain itself without leading to difficulties such as inflation and balance of payments problems.

The purposes of the International Monetary Fund have also gained importance due to the simple
fact that the number of member countries has grown. From the initial 44 countries that
they participated in the creation of the International Monetary Fund, it has more than quadrupled the
total number of member countries, a situation that has primarily obeyed to the obtaining of the
political independence of many developing countries and, more recently, to the disintegration
from the Soviet bloc.

Ends of the International Monetary Fund

i) To promote international monetary cooperation through a permanent institution that

serve as a mechanism for consultation and collaboration on international monetary issues.

ii) Facilitate the expansion and balanced growth of international trade, thus contributing to
to achieve and maintain high levels of occupancy and real income and to develop resources
productive of all member countries as primary objectives of economic policy.

iii) Promote exchange rate stability, ensure that member countries maintain regimes of
ordered changes and avoiding competitive exchange rate depreciations.

iv) To assist in establishing a multilateral payment system for current transactions that
are carried out among member countries, and eliminate the exchange restrictions that hinder the
expansion of world trade.

v) Instill confidence in the member countries by temporarily making available to them and with the
adequate guarantees for the general resources of the Fund, thus giving them the opportunity to correct
the imbalances of their balance of payments without resorting to harmful measures for prosperity
national or international.

vi) In accordance with the above, shorten the duration and reduce the degree of imbalance of the
balance of payments of the member countries.
International Monetary Fund forecasts that Ecuador will grow by 0.2% in 2017
According to the forecasts of the International Monetary Fund (IMF), the region
it will grow by 1.2% this year, which represents an increase of 0.2 percentage points
regarding the entity's forecasts from last April. The improvement in the
forecasts are driven by the decline in inflation in countries like Brazil and
Argentina, while Venezuela and Puerto Rico will be the only economies
Latin Americans who will not grow this year. Both Mexico and Colombia, Chile and
Peru will slow down its growth in 2017. In the case of the Aztec economy, the
The IMF has downgraded its outlook this time, with an increase of 2.1% this year.
The entity has also reduced the growth forecast for Colombia, which
it will raise its GDP by 1.7% in 2017. The same applies to Chile, which will grow by 1.4%
this year, although the IMF has raised its forecasts for 2018 with an increase of 2.5%
for the Chilean economy. In contrast, Peru is one of the markets that most
It will reduce its growth this year, decreasing from growing 4% in 2016 to 2.7% in
2017. On the other hand, Brazil, Argentina, and Ecuador will come out of recession this year.
In the case of Brazil, the South American giant will increase its economy by 0.7% in 2017.
after contracting by 3.6% in 2016. Argentina, on the other hand, will grow above
of 2%, with an increase of 2.5% of its GDP this year. Ecuador, for its part,
will go from falling by 1.5% in 2016 to evolving by 0.2% in 2017. For 2018, the IMF
it predicts that the region's real Gross Domestic Product (GDP) will increase by 1.9%
conditioned by the economies of the Caribbean and Central America, which will grow by 4.4%
and 3.9%, respectively, next year. (I)

IMF report forecasts growth for Ecuador

0.2% for 2017
The International Monetary Fund (IMF) predicts that the Ecuadorian economy will grow in 2017 by a
0.2% and by 2018 it will reach 0.6%. This is indicated in its growth projections in America.
Latin America and the Caribbean.

The report also forecasts an unemployment rate of 5.1% in Ecuador for 2016 and for the
2018, of 5.3%. The publication comes 24 hours after the government of the president of the Republic,
Lenín Moreno announced his economic projection for the remainder of 2017 and 2018.
THEIMF predicts that Latin America and the Caribbean will grow slightly.in 2017 and 2018, except
Venezuela, where a contraction of more than 10% and rampant inflation is expected.

In its World Economic Outlook for the second half, the IMF raised its forecast to 1.2%
growth of Gross Domestic Product (GDP) for the region in 2017, although it warned about the
disparity between countries, particularly due to the sharp recession of the Venezuelan economy.

Venezuela's inflation is growing frighteningly, according to the organization. In its report, the IMF indicated
that last year was 254.4%, for this year it is forecasted to be 652.7% and for 2018 it is projected to be 2,349.3%.

The IMF again projected a regional economic growth of 1.9% for 2018, in line with its
projection for July and with the recovery of the global economy, but down compared to its
forecasts from six months ago.

The institution also said that Brazil and Argentina are heading towards the end of the recession, to
highlight the entry of the Brazilian economy into 'positive territory' in the first half of the year, and
the increase in investment in the Argentine scenario.
Ecuador's needs in 2017 amount to USD 5.3 billion.

Ecuador will need about USD 5.3 billion in financing in 2017 to cover part of its
public spending and payment of debt and interest from past years. The information was disclosed on the 20th of

October, the Minister of Economic Policy, Patricio Rivera. Ecuador was close to reaching the
legal ceiling of 40% indebtedness in relation to GDP, which was a limitation to achieve
resources to finance the budget for this and next year. But on October 20, based on
an International Monetary Fund (IMF) manual, the Government issued a Decree to expand its
debt margin in USD 11 billion. Before the decision, the weight of the debt in
The GDP was 38.4%. Today it is 26.7%. The Decree introduced the so-called concept of 'debt
"consolidated" that removes from the accounting the debts that the State has with the IESS, the CFN, and others.

entities of the 'State family'. In an interview with Radio Visión last week, the official
He stated that by 2016, the 'money' needed to cover the budget amounts to 13 or 14%
of GDP; which is equivalent to about USD 12.5 billion or 13.5 billion. Initially for 2016
A resource need of USD 6,606 million had been calculated. Of that amount, up to the 22
In October, it raised around USD 10.1 billion, according to execution data.
budgetary available on the Finance page. It was done through external loans,
especially from China, bonds, domestic debt, and -to a lesser extent- loans from multilaterals. Without
the accounting change made last week to the debt/GDP indicator, the country would have reached
this same year the debt ceiling. For 2017, according to the Minister of Policy
Economically, the Government will need half of the funding planned for 2016. 'The next
The year (the need for financing) will be 5.5% of GDP, which is equivalent to about USD 5,300.
millions. Rivera indicated that a lower amount to be achieved is due to three factors: 'Simply, the
A large amount of liabilities that existed this year no longer exists, what is called a ball or floating debt.
Two, a number of payments in internal debt that are simply much softer. Three:
a lower level of deficit, given the adjustments we have made. In general, the requirement for
financing falls to half, less than half.” But among analysts, there are discrepancies about
these figures. For Fausto Ortiz, former Minister of Finance, the financing needs for the
Next year will depend on which candidate occupies the presidential chair. If it is the official candidate, Ortiz
it foresees that the country will continue on a path of indebtedness. If it is in opposition, it is possible to think

in a fiscal adjustment, which reduces the need to incur debt. Despite this, with the current
economic context and given the commitments made, Ortiz calculated that the needs of
resources for 2017 will be about USD 8 billion. The official projections are based on
that in 2017 the Government will no longer have to make so many investments, as most of the large
public works, such as hydroelectric plants, will be completed this year. For Ortiz, the fiscal situation of
2017 will be similar to 2016. For example, even though in 2017 the payment will no longer have to be made.
from USD 1 billion to Oxy, as happened this year, 1 billion must be canceled for pre-sale
oil company. In this, Walter Spurrier, director of Weekly Analysis, agrees, for whom the necessity
The credits will also depend on the price of crude oil. The IMF estimated in the annex report to the credit
quickly due to the earthquake of April 16 that for the following year the Ecuadorian State will not be able to

obtain all the financing for 2017 and, therefore, the economy will fall by 2.7%. "Maybe they will be
Fewer millions, as Minister Rivera said, but there will be more difficulties in obtaining.
"financing," said Spurrier. Marco López, former member of the ECB Board, believes that the next
year, apart from the "normal public spending, it will be an election year that will imply additional spending for

the materials that must be delivered to the different candidates for their campaign.
López, just in debt interest, around USD 2 billion must be paid next year.
this must include the capital payment. Ramiro Crespo, director of Analytica Investments, agrees.
With the government projection that in 2017 less funding will be needed, because
There will be less capital investment. But with less capital spending, that is, less work.
public, believes that there will be less economic activity, unless it is compensated with greater

investment private.