LONDON — Central banks are not exactly short of things to worry about right now.
The euro may well be on the road to a chaotic collapse, taking some of the world’s biggest banks with it. A currency war may break out between Japan, the U.S. and Europe. Printing money has run out of steam, but there is still little sign of the global economy returning to the kind of growth rates it saw before the credit crunch.
But in the long term what they should perhaps be most worried about is losing their monopoly on issuing money. A new breed of virtual currencies are starting to emerge — and some of the giants of the web industry such as Amazon.com Inc. AMZN -0.03% are edging into the market.
Gresham’s law famously stated that bad money would drive out the good. In the 21st century, it is now possible the law might be turned on it head. Good money might drive out the bad. If so, that matters to investors — for the simple reason that investing in the right currency makes a lot more difference to the kind of returns you can expect than what you actually put your money into.
But Gresham’s law applied to the age when it was formulated — Tudor England, where money consisted of the physical metal in the coins. If someone started minting coins with less gold or silver in them, they inevitably squeezed out the coins that had been properly made. But today’s world, dominated by paper currencies controlled by central banks, operates very differently. The money we use has no intrinsic value — so bad money could be driven out by the good.
Read More at Marketwatch . By Matthew Lynn.