Monetization


Monetization or monetisation is, broadly speaking, the process of converting something into money. The term has a broad range of uses.
In banking, the term refers to the process of converting or establishing something into legal tender. While it usually refers to the coining of currency or the printing of banknotes by central banks, it may also take the form of a promissory currency.
The term "monetization" may also be used informally to refer to exchanging possessions for cash or cash equivalents, including selling a security interest, charging fees for something that used to be free, or attempting to make money on goods or services that were previously unprofitable or had been considered to have the potential to earn profits. And data monetization refers to a spectrum of ways information assets can be converted into economic value.
Still another meaning of "monetization" denotes the process by which the U.S. Treasury accounts for the face value of outstanding coinage. This procedure can extend even to one-of-a-kind situations such as when the Treasury Department sold an extremely rare 1933 Double Eagle. The coin's nominal value of $20 was added to the final sale price, reflecting the fact that the coin was considered to have been issued into circulation as a result of the transaction.
In some industry sectors such as high technology and marketing, monetization is a buzzword for adapting non-revenue-generating assets to generate revenue.

Promissory currency

Such commodities as gold, diamonds and emeralds have generally been regarded by human populations as having intrinsic value within that population based on their rarity or quality and thus provide a premium not associated with fiat currency unless that currency is "promissory". That is, the currency promises to deliver a given amount of a recognized commodity of a universally agreed-to rarity and value, providing the currency with the foundation of legitimacy or value. Though rarely the case with paper currency, even intrinsically relatively worthless items or commodities can be made into money, so long as they are difficult to make or acquire.

Debt monetization

Debt monetization is the financing of government operations by the central bank. If a nation's expenditure exceeds its revenues, it incurs a government deficit which can be financed
either by the government treasury, by way of
or by the central bank, through
In the latter case, the central bank may purchase government bonds by conducting an open market purchase, i.e. by increasing the monetary base through the money creation process. If government bonds that have come due are held by the central bank, the central bank will return any funds paid to it back to the treasury. Thus, the treasury may "borrow" money without needing to repay it. This process of financing government spending is called "monetizing the debt".
In most high-income countries the government assigns exclusive power to issue its national currency to a central bank, but central banks may be forbidden by law from purchasing debt directly from the government. For example, the Treaty on the Functioning of the European Union forbids EU central banks' direct purchase of debt of EU public bodies such as national governments. Their debt purchases have to be from the secondary markets. In China, the central bank, called as the People's Bank of China, is forbidden by the PBOC Law of 1995 to give overdrafts to government bodies, or buy government bonds directly from the government, or underwrite any other government debt securities.. Monetizing debt is thus a two-step process where the government issues debt to cover its spending and the central bank purchases the debt from secondary markets and perpetually rolls it over, leaving the system with an increased supply of money.

Debt monetization and inflation

When government deficits are financed through debt monetization the outcome is an increase in the monetary base, shifting the aggregate-demand curve to the right leading to a rise in the price level. When governments intentionally do this, they devalue existing stockpiles of fixed income cash flows of anyone who is holding assets based in that currency. This does not reduce the value of floating or hard assets, and has an uncertain impact on some equities. It benefits debtors at the expense of creditors and will result in an increase in the nominal price of real estate. This wealth transfer is clearly not a Pareto improvement but can act as a stimulus to economic growth and employment in an economy overburdened by private debt. It is in essence a "tax" and a simultaneous redistribution to debtors as the overall value of creditors' fixed income assets drop. If the beneficiaries of this transfer are more likely to spend their gains this can stimulate demand and increase liquidity. It also decreases the value of the currency - potentially stimulating exports and decreasing imports - improving the balance of trade. Foreign owners of local currency and debt also lose money. Fixed income creditors experience decreased wealth due to a loss in spending power.
This is known as "inflation tax". Conversely,
tight monetary policy which favors creditors over debtors even at the expense of reduced
economic growth can also be considered a wealth transfer to holders of fixed assets
from people with debt or with mostly human capital to trade.
A deficit can be the source of sustained inflation only if it is persistent rather than temporary, and if the government finances it by creating money, rather than leaving bonds in the hands of the public.

Revenue from business operations

s and mobile apps that generate revenue are often monetized via online advertisements, subscription fees or in-app purchases. In the music industry, monetization is achieved by placing ads before, after or in the middle of content on a platform that supports this, or posting the music on on-demand apps like Spotify and Apple Music. On-demand content sites like Spotify and Apple Music pay the artist a percentage of the monthly subscription fees they receive from their users. To put release music on streaming apps like Spotify and Apple music, an artist has to reach out to a distributor like TuneCore or Distrokid. They are the one who do make the music available on streaming sites. This is usually done for a percentage of the revenue generation. For each public viewing, the advertising revenue is shared with the artist or others who hold rights to the video content. A previously free product may have premium options added thus becoming freemium.
Failure to monetize web sites due to an inadequate revenue model was a problem that caused many businesses to fold during the dot-com bust.
Equally, David Sands, CTO for Citibank Equity Research, affirmed that failure to achieve monetization of the Research Analysts' models as the reason the de-bundling of Equity Research has never taken hold.

Monetization of non-monetary benefits

Monetization is also used to refer to the process of converting some benefit received in non-monetary form into a monetary payment. The term is used in social welfare reform when converting in-kind payments into some "equivalent" cash payment. From the point of view of economics and efficiency, it is usually considered better to give someone a monetary equivalent of some benefit than the benefit in kind.
In 2005, Russia transformed most of its in-kind benefits into monetary compensation.
Before this reform there was a large system of preferences: free/reduced price of travels on local transport, free supply of drugs, free health resort treatment, etc. for diverse categories of society: military personnel, the disabled, and separately, persons disabled due to World War II, Chernobyl liquidators, inhabitants of Leningrad during the siege, former political prisoners, and for all pensioners. This system was a legacy of the Soviet Union, but it was heavily extended by populist laws passed by central and regional authorities during the 1990s.
By the law 122-ФЗ of 22 August 2004, this system was converted into cash payments by various means:
The main causes of friction in the reform were the following:
A wave of protests emerged in various parts of Russia in the beginning of 2005 as this law started to take effect. The government responded with measures that eventually addressed the most pressing of the protesters' concerns.
The long-term effects of the monetization reform varied for different groups. Some people received compensation in excess of the services they had previously received, while others found the compensation to be insufficient to cover the cost of the benefits they had previously depended on. Transport companies and railroads have benefitted from monetization as they now collect higher revenue from the use their services by pensioners who had previously ridden at the government's expense. Effects on the medical system are controversial. Doctors and nurses have to fill out many forms in order to receive compensation from the government for services provided to pensioners, thus reducing the time that they have to provide medical services.

United States agricultural policy

In United States agricultural policy, "monetization" is a P.L. 480 provision first included in the Food Security Act of 1985 that allows private voluntary organizations and cooperatives to sell a percentage of donated P.L. 480 commodities in the recipient country or in countries in the same region. Under section 203, private voluntary organizations or cooperatives are permitted to sell for local currencies or dollars an amount of commodities equal to not less than 15% of the total amount of commodities distributed in any fiscal year in a country. The currency generated by these sales can then be used: to finance internal transportation, storage, or distribution of commodities; to implement development projects; or to invest and with the interest earned used to finance distribution costs or projects.