Monetization

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Monetization is the process of converting or establishing something into legal tender. It usually refers to the printing of banknotes by central banks, but things such as gold, silver and diamonds can also be monetized. Even intrinsically worthless items can be made into money, as long as they are difficult to make or acquire. Monetization may also refer to exchanging securities for currency, selling a possession, charging for something that used to be free or making money on a goods and services that were previously unprofitable.

Debt monetization

Debt monetization occurs when a nation's central bank (e.g. the Federal Reserve in the United States) buys government bonds. If a government's expenses exceed its tax revenue, debt monetization prevents the government from taking capital out of the private market. Since there is a limited amount of capital available in the market, there will be less available to fund business growth if the government takes a substantial portion.

Debt monetization can be seen as a flat tax because the government acquires additional funds while the currency decreases in value. However, monetization can be good because it helps the government out of debt at the beginning. Debt monetization also has the drawback of increasing the twin deficit. That is, when government financing is increased, along with interest rates and foreign capital, the trade deficit also goes up.

Revenue from business operations

In some industry sectors, monetization is a buzzword for adapting non-revenue-generating assets into those that generate revenue. Failure to monetize web sites was a problem that caused many businesses to fold during the dot-com burst. Web sites that do generate revenue are often monetized via advertisements or subscription fees.

References

• Monetizing the Debt

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Last updated on Tuesday January 29, 2008 at 08:41:08 PST (GMT -0800)
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