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‘But you’re Muggles!’ said Mr Weasley delightedly. ‘We must have a drink! What’s that you’ve got there? Oh, you’re changing Muggle money. Molly, look!’ He pointed excitedly at the ten-pound notes in Mr Granger’s hand.

Chamber of Secrets - page 47 - UK Hardcover - chapter 4, Flourish and Blotts

So Gringotts exchanges Muggle money for Wizarding money. What do the Goblins do with the Muggle money after the exchange has been made? Is it possible they keep a stash of Muggle money on hand for reverse exchange purposes, or do they surreptitiously feed the money back into the Muggle economy?

What do Goblins do with Muggle money?

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    Just speculation, but squibs who go out into the muggle world to work will need Muggle money and also wizards might need it while doing Muggle studies research or trying to remain under cover, so I guess they keep it for reverse exchange. Great question though!
    – Dharini Chandrasekaran
    Apr 26, 2012 at 17:40
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    What the exchange rate?
    – OghmaOsiris
    Apr 26, 2012 at 18:04
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    @OghmaOsiris 10 British pounds equal 2 galleons, 0 sickles, and 0 knuts. $20.14 US also equals the above. There's a currency converter here: hp-lexicon.org/wizworld/galleons.html :D
    – Slytherincess
    Apr 26, 2012 at 19:35
  • @DhariniChandrasekaran -- Great comment! Thanks :)
    – Slytherincess
    Apr 26, 2012 at 19:42
  • Posted a more canonical update in my answer :)
    – DVK-on-Ahch-To
    Sep 16, 2013 at 20:27

2 Answers 2

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UPDATE:

Found a canon answer:

Q: When people trade in Muggle money for Wizard money, what does Gringotts do with the Muggle money?

JKR: Those goblins are sneaky people. They manage to put the Muggle money back into circulation. They are like "fences" --British slang, do you understand it?

(src: America Online chat with JKR transcript, AOL.com, 19 October 2000)

================

Original answer:

No canon info I could find, but:

  • They can reverse-exchange it to those dealing in Muggle world (as per Dharini's excellent comment)

  • They can purchase - through intermediaries - resources in Muggle world. Minerals, chemicals, may be land. Remember that Goblins can't have wands and therefore may not be as resource-independent as Wizards (and even they aren't very resource independent).

  • They could also simply stockpile it as a hedge. In case magical world ever connects with Muggle, they will be well off :)

Also, there aren't THAT many muggle-born Wizards, so it's unlikely we are talking about a LOT of money being exchanged here. Aside from Muggle parents of Magical kids, or the extremely rare wizard working in Muggle world (see separate question on SFF), who'd need to exchange money?

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    They could also be buying food with it. Since you can't create food with magic.
    – Jack B Nimble
    Apr 26, 2012 at 18:52
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    Half-bloods, with one half of their ancestry being Muggle, would probably have as much exposure to and use of Muggle money as Muggleborns would, assuming they have one Muggle parent and their family has not chosen to live an all-magical life. (I'm not talking about half-bloods whose parents are both magic) :)
    – Slytherincess
    Apr 26, 2012 at 19:41
  • how does putting the muggle money back into circulation benefit them? what gain do they have then? It would make more sense to send a human agent into the muggle world and buy gold with the muggle money. I'm not a finance guy though so (shrug) - I'm sure I'm missing something
    – NKCampbell
    Jul 20, 2017 at 19:36
  • Maybe Goblins, unlike Wizards, know how to invest muggle money?
    – TimSparrow
    Oct 2, 2018 at 9:14
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Muggle money (British pounds) can be used to buy gold in the Muggle world, which is certainly worth something in the Wizarding World. The goblins could use it to make more galleons, possibly.

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