Negative effects of counterfeit money on the economy

Financial University under the Government of the Russian Federation

Moscow, Russia

Bui Thi Ngoc Ha, second year bachelor student International Finance Faculty

Financial University under the Government of the Russian Federation Moscow, Russia

Imagining yourself holding a fake $100, how many people do you believe you could fool around? Say maybe 1 out of 10, or maybe 9 out of 10, it doesn’t matter. The important is, counterfeit money has entered into the economic market so easily and unnoticeably. Nowadays, there are many cases of companies or industries got bankrupt due to the amount of fake money being transacted in and out the market intentionally and unnoticeably. Since then, from a simple Massachusetts paper money, it has upgraded to plastic money, then to bank credit/debit card and now crypto currency. Have all these upgrading levels help preventing the counterfeit money? Yes, they have. In the first half of 2017, Euro banknote counterfeiting remained low, a total of

Did you know…

… that Superdollar is the name given to a $100 bill of the United States that is actually, a counterfeit. It its such high quality that it is very difficult to distinguish it from a real $100 note.

1,318 counterfeit and altered Czech banknotes and coins were seized in the Czech Republic, much more the same in China. Obviously, it was because Eurosystem – the ECB and the 19 national central banks of the euro area – encouraged people to be vigilant when receiving banknotes, or China took the responsibility in hands and arrested 14 suspects with $44 million, marked as the largest case of counterfeiting money since 1949 In the last several decades, the world has seen the stable growth of China’s economy. Certainly, China now plays an important role in global economy. When three unexpected consecutive devaluations of yuan renminbi occurred in 2015, China and US market were harmed. 4% of yuan renminbi declined compared to US dollars, thus created the situation that US imports were too expensive for China, and lower demand for US goods could mean slightly slower economic growth in US. Many organizations are still trying their best to warn people about counterfeit money by creating methods of checking signs and color of paper and plastic money. Many anonymous online banks being seriously observed and examined; people started to use crypto currency and most importantly the action of governments and policies.

How does counterfeit money affect the economy? First of all, counterfeit money leads to losses to industries. This is the elementary issue that is associated with the circulation of counterfeit currency in the economy. Businesses and industries of a nation are likely to incur huge amounts of losses. When the banks are informed about fake currency being involved in some significant business transactions, it is confiscated with immediate effect, but most of the time, the businesses do not get reimbursement for their money. This leads to heavy losses that may affect them, either immediately or in the long run. Secondly, counterfeit money creates black marketing. That is, all transactions are made in cash and are always off the record. Goods and services, which should be made available to people at established and reasonable rates are sold illegally at elevated prices. Commodity shortages are purposefully created so that more amount of cash can be exchanged and still go unaccounted. This also results in rise to the vicious circle of corruption. Lastly, circulation of fake money leads to inflation. As counterfeit money enters the market, there is more money in circulation than there should be. Owing to this, the number of potential buyers increase, thus, there is a rise in demand for goods and services. Therefore, since supply cannot meet the demand, shortage of goods occurs, which results in the rise in prices, or inflation.

Overall, the greatest consequence of circulation is the loss of public confidence. People tend to lose faith in the economy of their country and the money that they hold. Thus, in order to avoid any kind of encounter with counterfeit money, we may start demanding payments to be made in some other, more stable currency. This may further destabilize the country's overall economy.