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What impact does counterfeit money have on the economy?
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All currency is backed by gold or silver, if you produce more currency then you have gold to back it up with, you can collapse an economy by lowering the value of their currency to the point where they are bankrupt.Suppose you have 20 pounds of gold and you issue enough currency to cover what the gold is worth, now someone comes along and makes more currency to distribute, if everyone were to cash in ( which isn't physically possible, but in theory it can happen) you would have no way of giving everyone the gold for their currency. Now multiply this by 1000's and 1000's and you'll see how it can cripple a countrys economy.
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I don' tknow but lets' find out...
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It creates artifical inflation. The dollar is no longer backed by gold or silver, hasn't been for a while. Money is basically a "trust" concept. You used to barter (1 cow for 10 hens). The idea of money is that 1 dollar will buy both, so now I don't need to trade you a cow for a hen. I can sell my cow for a dollar and pay you a dollar for the hen. We all trust that a dollar to me is the same as a dollar to you.. By introducting fake money, there is no real expectation of value (a cow or a hen) so it makes everything worth additional money. The person with the hen anticipated me having 1 dollar (from my cow), but now I have 2 dollars (one real from my cow and one fake from my basement). The hen owner will change their value and prices accordingly. Or worse, I kept my cow and produced that one dollar in my basement and buy your hen. Now I have a cow and a hen, and nobody else has anything except for fake money.. . Fortunately, money circulates through banks so often, that counterfeit money is caught and removed from circulation.
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It dilutes its value. Germany counterfieted money in WWII of Britain's. The US did the same thing to North Vietnam. Common war tactic.
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