Impact of counterfeit money on economy is great and it includes destabilization of the economy. Counterfeit money refers to an imitation currency that is produced illegally without government or state sanction. Using counterfeit money is considered a form of forgery or fraud. However, counterfeiting has been around since the time when money started to be used.
Money counterfeiting increased after the introduction of the paper currency. A classic instance of money counterfeiting dates back to the era of the World War II. This was a time when the German Nazis counterfeited British pounds and American dollars in large amounts in a bid to destabilize British and American economies. A large amount of that counterfeit money circulates across the world today. This is because some of this money is of high quality which makes it difficult to identify.
Generally, counterfeit money poses a threat to the economy of a country. It acts as a financial loss to the country and its citizens. Among the effects that counterfeit money has on the economy is the reduction of the real moneys value. Prices of commodities also increase which leads to inflation. This is because due to counterfeit money, there is more money in circulation without regulation.
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When there is an increase in supply of money, paper money acceptability decreases. Its value is also lost because traders are usually not reimbursed for the counterfeit money when banks detect it. Even when the money is confiscated it is not reimbursed. However, effects of counterfeit money may not be felt significantly by macroeconomic in countries that have smaller fraction of paper money. However, macroeconomic impacts such as losing confidence in the currency may be higher.
Due to these impacts, different countries have put different measures in place to prevent money counterfeiting. Traditionally, such measures include raising the fine derails of intaglio printing. Nevertheless, this has not completely eradicated counterfeiting in the modern economies.
Today, less than dozen of the global companies have the security grade processing and printing. Although these companies do not encourage money counterfeiting, state sponsored agencies acts as the cover for performing the task.
Tracking the source of paper, ink, plates and dies to eventually nail the terror financiers and destabilizes is not difficult. Nevertheless, failing to combat money counterfeiting will have uninsurable risk on the economy of any country. Apart from harming the economy, this vice affects functioning and reputation of the central bank of a country greatly.
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