Gresham's law states only one precondition: in the world of metal coins, if there is a fixed rate of exchange between good and bad money, then bad money will drive out good. We argue, however, that when there is <italic>no</italic> fixed exchange rate between good and bad money, and when the government...

We examine the equilibrium and adjustment of exchange rates in the Chinese silver standard economy, 1928–1935. We find a robust long-run relationship between the Chinese dollar exchange rate and the metallic value of the Chinese dollar. The deviation from the equilibrium is short-lived and is...