Quora Answer: How Does Money Laundering Lead to a Rise in Inflation?

The following is my answer to a Quora question: “How does money laundering lead to a rise in inflation?”

Money laundering is the concealment of the origins of illicit, through placement and integration into the economy.  Inflation is the general increase in prices, and the decline in the purchasing power of money.  Since the black economy still contributes to the GDP of the nation, the influx of funds creates liquidity, which leads to a growth in consumer purchases as funds that are not supposed to be there, circulate in the economy.

That being said, the monies are themselves from legitimate sources, which then make their way into the black economy, and are now reintegrated back.  Monies are not actually created from nothing.  This would be a different matter altogether if the funds are counterfeit.  As such, money laundering does not actually have a major impact on inflation since the amounts are a small percentage of overall GDP.  If they are a significant part of the economy, then there are deeper problems than mere inflation.