Monetization
From Wikipedia, the free encyclopedia
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 is the conversion of government debt into money. The government sells bonds to its nation's central bank, (the Federal Reserve in the United States), which pays for the bonds by printing additional currency or just increasing a bank balance. If a government needs or wants to spend more money than it takes in, such as during a war, debt monetization is one way to do it. It prevents the government from competing with businesses for private capital. There are a limited amount of funds available for borrowing and if the government takes a substantial portion of them, there will be less funds for businesses and interest rates will increase. When performed in isolation, debt monetization causes inflation (as do all forms of money creation). 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 draw back 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.
In business, monetization refers to the process of deriving revenue from some group of customers that would not otherwise generate revenue for the business. The problem of monetizing a group of web site users is one that many companies failed to solve during the dot-com bust, and folded. These customers are often monetized today by placing advertisements on web sites.
