Question

The Congressional Research Service estimates that at least \(\$ 45\) million of counterfeit U.S. \(\$ 100\) notes produced by the North Korean government are in circulation. a. Why do U.S. taxpayers lose because of North Korea's counterfeiting? b. As of December 2014 , the interest rate earned on one-year U.S. Treasury bills was \(0.13 \%\). At a \(0.13 \%\) rate of interest, what is the amount of money U.S. taxpayers are losing per year because of these \(\$ 45\) million in counterfeit notes?

Short answer

U.S. taxpayers lose because counterfeiting leads to a decrease in the value of genuine currency, causing inflation and reduced purchasing power. Additionally, the government's expenses in combating counterfeiting and safeguarding the financial system increase, ultimately burdening the taxpayers. b. How much money do U.S. taxpayers lose per year because of North Korea's 45 million in counterfeit notes, given the interest rate earned on one-year U.S. Treasury bills is 0.13%? U.S. taxpayers lose approximately $58,500 per year due to these counterfeit notes, as this is the potential interest they would have earned if the $45 million were genuine and invested in one-year U.S. Treasury bills.

Step-by-step solution

a: Explanation of the impact of counterfeit notes on the U.S. taxpayers

Counterfeiting has significant economic and financial consequences. When counterfeit notes are distributed in the economy, the value of the genuine currency decreases. This leads to inflation, as more money is chasing the same amount of goods and services. As a result, the purchasing power of real money held by U.S. taxpayers is reduced, causing them to lose wealth. Additionally, the cost of fighting counterfeit currency and the measures taken to safeguard the financial system result in higher expenses for the government, which are ultimately borne by U.S. taxpayers.

b: Calculation of the annual amount of money U.S. taxpayers are losing

In order to calculate the annual amount of money U.S. taxpayers are losing because of the counterfeit notes, we need to consider the opportunity cost of holding genuine currency that could have otherwise been invested in one-year U.S. Treasury bills at the given interest rate of \(0.13 \%\). First, let's find the total interest that would have been earned on these \(45\) million counterfeit notes if they were genuine and invested in one-year U.S. Treasury bills: Total Interest = Principal Amount * Interest Rate Total Interest = \(45,000,000 * 0.0013\) Now, let's calculate the total interest: Total Interest = \(45,000,000 * 0.0013 = 58,500\) U.S. taxpayers are losing approximately \(58,500\) per year due to these \(45\) million in counterfeit notes, as this is the amount they would have potentially earned if this money was invested in one-year U.S. Treasury bills.