How Does Counterfeit money wrech an economies?

Question

I heard that counterfeit money can ruin an economy, but I can't realy understand how and why. Can you explain this.

Answer 1

Supply and Demand. If there is more paper money available in an economy (the supply of money increases), then that devalues the "real" value of each dollar. It then takes more dollars to buy the same amount of a product (i.e. prices rise). This is called inflation.

People also loose confidence in currency which may force them to choose to deal in other assets, reducing the liquidity of wealth.

Also if you find that you possess counterfeit money, you cannot "trade" that money in for legitimate currency, so you're stuck owning worthless paper

Answer 2

I was told every dollar has to have gold or something to back it up.Couterfeit money is worthless.

Answer 3

the more money there is in an economy the more things cost. Too many dollars chasing too few goods. The government regulates the amount of money that is in the economy.

when an outside source starts introducing money into an economy the government can't regulate, that will drive up prices, and ruin an economy.

Answer 4

Only if it's a really small economy.  Counterfeiting a couple million dollars or Euros would do little to countries with 6 to 800 million in printed currency people would barely notice a change the quantity of money.  Plus banks catch them as soon as they cycle through their system.

Answer 5

money is a promisory note by a national treasury to pay the value of the currency in a universally valued standard, this standards are varied; gold,oil, good credit, by creating artificial abundace of a currency, it lowers its value agianst its backing commodity and undermines the ability of the treasury to make good on the debt incurred by the supossed value of the fake notes.

Answer 6

It adds to the money supply and devalues the currency.

Imagine the impact on an economy if you counterfeited trillions of dollars and mailed everybody a million dollars in the mail? It over causes hyper inflation and destroys an economy.