The grey economy is economic activity and money that sits outside the licensed, taxed and banked system without being clearly criminal in itself. The goods or services are usually lawful, but the activity escapes registration, reporting, licensing or banking: cash work that is not declared, trade through unlicensed intermediaries, or payments that move over channels regulators do not supervise.
The term is used loosely and overlaps with two related ideas. The shadow economy (underground economy) covers all activity hidden from authorities, including outright crime, while the informal economy focuses on unregistered work and small enterprises, often in developing countries. "Grey" stresses the middle ground: lawful in substance, irregular in form. In payments, it often describes volume pushed out of regulated channels by bans, de-risking or licensing gaps.
Grey economy in plain terms
Think of three kinds of market stall. One has a licence, a till and a receipt book. One sells stolen goods from the back of a van. The third sells ordinary vegetables, but has no licence, takes only cash and never tells the tax office. It is not selling anything illegal, yet it is not part of the official market either.
The grey economy is that third stall, scaled up. It includes the builder paid in cash, the money changer without a licence and the online business that cannot get a bank account so it takes payments through a friend's wallet. Each may be doing something ordinary, but outside the rules that normally apply.
| Term | Main feature | Typical examples |
|---|---|---|
| Grey economy | Lawful activity carried on outside licensing, tax or banking rules | Undeclared cash work, unlicensed currency exchange, payments via unregistered agents |
| Shadow economy | All activity hidden from the state, lawful or not | Tax evasion, smuggling, drug trade |
| Informal economy | Unregistered enterprises and jobs without legal protection | Street vendors, domestic workers, small family firms |
| Black economy | Activity that is illegal in itself | Fraud, trafficking, illegal gambling |
Boundaries shift with the law. When a country bans a product, such as a form of online gambling, activity that was licensed the day before can move into the grey or black economy without any change in what people actually do. The grey economy should also not be confused with shadow banking, which means credit intermediation by non-banks and is often fully legal and supervised.
Measuring the grey economy
By its nature, the grey economy is hard to measure. Researchers estimate it indirectly, through cash demand, electricity use, labour-force surveys or gaps between income and spending data. The European Union's working definition of undeclared work, "paid activities that are lawful as regards their nature but not declared to public authorities", captures much of the grey economy in Europe, and the European Labour Authority now hosts the platform for tackling undeclared work set up in 2016. The International Labour Organization estimated in 2018 that around 61% of the world's employed population worked informally, although that figure measures the wider informal economy and informal employment rather than grey activity alone.
Grey channels in payments
For payments and banking, the grey economy matters most as a destination for money that regulated firms will not, or may not, handle. Typical channels include:
- Cash and informal transfer. Cash handling and hawala transfer networks that operate without registration.
- Crypto rails. P2P trading of stablecoins and over-the-counter desks used to move value in and out of local currency outside banks.
- Unlicensed intermediaries. Agents and collection accounts that receive funds for others without authorisation, which in many countries amounts to unlicensed money transmission.
- Borrowed accounts. Personal accounts used to collect business payments, overlapping with the mule (bank) account problem.
Online gambling shows how this works. Operators with a weak offshore gaming license, especially one from a license mill or held through a nominee owner, struggle to keep a high-risk acquirer or bank. After offboarding, deposits often shift to e-wallets, crypto and local agents. When a country restricts gambling, payment institutions may be required to refuse unlicensed operators, as Brazil's rules have required since 2025, but player demand remains and part of it moves to these grey channels.
Causes and policy responses
Common drivers include high taxes and compliance costs, slow or expensive licensing, strict bans on products that people still want, exchange controls and poor access to banking. Some activity is grey simply because providers cannot get inside the payments perimeter or the wider regulatory perimeter at reasonable cost.
Policymakers respond in two broad ways. Enforcement measures include payment blocking, action against unlicensed agents and tighter anti-money laundering (AML) controls. Inclusion measures aim to make the formal route cheaper: simpler licensing, basic bank accounts, digital payments such as PIX and lower thresholds for registering small businesses. Research on financial inclusion suggests that cheap, trusted digital payments can shrink grey cash activity, while sudden bans without enforcement tend to grow it.
Risks
The grey economy reduces tax revenue and leaves workers and consumers without legal protection, deposit protection or complaint routes. Because money in grey channels is poorly recorded, it is also easier for criminals to hide money laundering inside it, which blurs the line between grey and black over time.