Macro Economic Effects

Clearly, there are large macroeconomic effects, as money laundering does not occur on a small basis typically. Meaning, if someone needs to launder money, they are going to have a certain large arbitrary quantity of financial instruments, otherwise there would be no point in the concealing of them. The amount has to be enough that a loss of means is not an issue, laundering causes the loss of a certain amount of financial means during the process. Fees for the launder are taken out primarily (statistically 10%), as well as the aggregate process itself is somewhat financially consuming.

Macroeconomic policy is difficult to implement because of laundering activities, acquiring valid statistical data is atypical. To completely capture monetary behavior is an issue because finding out the origins of certain monies, as well as the currency originally used can be so weaved into different economic aspects that it becomes near impossible to find out either of these two vital components. Misleading monetary data can be a large issue, as when the currency of issuance is not known, there are large economic discrepancies present.

In aggregate, money demand is the subject which is affected the most. This can in turn affect the interest rates of a country, as well as the exchange rate volatility. Generally, the greater the monetary data becomes distorted, the greater the volatility that we experience in an arbitrary country.

Economic growth in the macroeconomic sense is also affected, as with laundering there is a transfer of investments from sound projects to lower quality pursuits. This transfer houses an inherent argument that income will not be distributed properly. Instead of high, educated investors getting money to implement projects that would lead to large scale economic growth, there is an investment in low scale projects that are eventually abandoned once they have served their purpose. Hence, the amount of income investors that would otherwise stimulate growth in a country is shifted, and there is a returns allocation problem. Most money which is laundered is put into higher risk, shorter term investments that put the money into the legitimate economy the quickest, not into longer term investments that would otherwise procure economic fruition.

Insider trading is inherent to laundering, and can cause huge international macroeconomic issues. Confidence in certain markets can be affected when profits are effected to due such things as embezzlement, fraud, and most importantly insider trading. With a drop in confidence, there is of course a drop in investments in certain markets in arbitrary countries, hurting the macroeconomic stance of many countries.

Even when laundering is not meant to evade taxes, rather just to hide the origins of the monies in question, it can cause negative tax effects. There is an inherent domino effect in laundering, when one law is broken in regards to laundering, there is clearly at least five others which are in turn violated. It is an issue of magnitude, what might seem as a simple shell company investment to avoid the showing of a huge amount of revenue which someone makes off illegal activities, might in turn evade taxes, affect confidence in markets, and increase taxes.

The more that a person launders, the more their laundered financial holdings will cultivate, even if the investment is shifted throughout multiple locations. To initially invest laundered monies into something is not problematical, it is merely a wire transfer made possible with a kickback. The harder object to tackle is the transferring of funds back into the legitimate economy, and making those financial assets seem legal and legit. This can in turn create huge balances for the launderer in foreign places, which if affected can drastically affect a small to medium economy. As stated in previous parts of this site, it is possible for one launderer to invest correctly and take over and corner a small economy. This may seem like an unrealistic scenario, however it is clearly a possible case. Once this money is pulled out of that economy however, that entire economy is affected, causing the loss of a complete economic system for a small country.

In conclusion, money laundering is a purposeful form that can cause serious problems throughout a financial market. Clearly, it has and is currently playing a role in our fiscal and monetary sectors.