Eli5 In fiction, when large sums of cash or money are destroyed, what would the real world implications be if it was done in real life?

Question

For example in Dark Knight or Gangs of London, what would be the knock on effects in the real world if 100s of thousands/millions was destroyed on the real world financial system?

In: Economics

Answer 1

First of all it’s very illegal.

And then for the economy it highly depends on what that money did before. Was it rotting in some gangsters stash? Or was it intended to pay for something. Because if it was supposed to be used then demand for that good would crash (say the gangsters wanted to buy luxury cars from the drug money) wich means the sellers of those products have to lower their prices to still get a customer.

This keeps cascading through all parts of the economy and causes some deflation (decreasing prices, increasing value of money).

Though just burning some millions won’t make a huge dent, since there are trillions circulating in the economy. So the influence would likely be local and temporary unless you burn a much larger amount.

Also most of our money only exists in bank accounts. Cash is just a tiny fraction