In this video I want to talk about the Nazi Plan to counterfeit the Pound and the film “the Counterfeiters” which portrays some of those events.
The reason why I’ve made a video about this is because it shows the problems that can occur with currencies. I’ll explain what I mean as we go along.
Spoiler alert !! …. I’m going to be talking about the film a little, so if you don’t want me to ruin the film for you, you might want to stop here – although I’ve probably said enough already. Anyway, you can always listen to this video after having watched the film.
The film is based on a true story about a plan by the Nazis to counterfeit the Pound Sterling during WWII.
Their plan was as simple as it was cunning. As the name of the film suggests, it was to produce a lot of counterfeit notes.
In doing this, they had two main aims.
The first aim was to flood Britain with lots of counterfeit notes causing a loss of confidence in the currency in circulation, the Pound Sterling.
Bear in mind that that was a time before digital currencies, … when they used the physical form of currency cash. So Cash was still King.
It stands to reason that confidence would have been eroded if the populace didn’t know which bank notes were fake and which were real.
The second aim is a little less obvious though equally damaging. It was to increase the Money Supply causing the Sterling to lose its value, or Purchasing Power.
When there is lots of currency in circulation in an economy then the value of the currency goes down. Maybe it’s helpful to think in terms of the Economic laws of Supply and Demand. When there is an oversupply of something, prices typically go down.
As evidence of this phenomena, we need only look at OPEC. OPEC is a cartel of oil producing nations in the Middle East. When they collude and limit production, the price of crude oil per barrel rises. When they increase production, the price of crude oil per barrel falls.
Currencies can be considered as being a special kind of commodity where the Economic laws of Supply and Demand affect value.
A good analogy to use to gain an understanding of the issue of the effects of increasing the Money Supply is whiskey.
Some people like to drink whisky neat. Some people like to drink whisky with ice. Some people like to drink whisky with water. If you add water, the whiskey becomes somewhat diluted – it’s not quite so strong. If you add too much water, the taste of the whiskey is lessened to some extent and, more importantly perhaps, it loses some of its potency (in respect of each mouthful taken)
The same is true of a currency – it can become diluted – it can lose its potency. Although different terms are used. Analogies are rarely perfect, but I hope you get the idea.
When it comes to a currency, instead of saying, adding water, the phase used is, “increase in the Money Supply”. And, for “dilute”, the terms used are, either “devalue”, or “debase”. And for potency, the term
