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Friday, 23 March 2012

Monetary nature of monetary items that are not units of internal currency held

Monetary nature of monetary items that are not units of internal currency held
 All items in the economy – monetary items, variable real value non-monetary items and constant real value non-monetary items – are normally received or paid in money. That obviously does not mean they are all monetary items. Money is simply used as the generally accepted medium of exchange. Non-monetary items remain non-monetary items even when they are always paid and received in money, e.g., borrowing costs paid and finance charges received. This is also true even when they are mostly paid / collected immediately they become due; e.g. bank interest and bank charges. Banks immediately collecting bank charges and bank interest by charging these items to a bank account immediately they become due create the impression that they are monetary items. However, they are all constant real value non-monetary items always paid or received in money as the generally accepted medium of exchange.

 Monetary items that are not units of internal currency held (e.g. money loans) have the exact same attributes as money held except that they are not present as bank notes and coins. A bank loan is a monetary item that is not always money held. It can be received or paid in actual bank notes and coins or as an electronic transfer into a bank account. A bank loan that is not money held is an example of an item with an underlying monetary nature. An item with an underlying monetary nature is, in principle, a substitute for money held.

 A building is a non-monetary item. It is not a substitute for money held. It is normally paid for in money. The owner normally receives money for selling it, and the buyer normally pays for it in money, but that is simply the medium of exchange. The owner can also receive the payment for the building in diamonds. The building is a variable real value non-monetary item irrespective of how it is exchanged between two entities.

 The capital amounts of commercial bonds, government bonds, inflation-indexed government bonds, money market items, debt items, capital market items, bank loans, credit card loans, car loans, housing loans, student loans, consumer loans, etc. are all, in principle, substitutes for units of internal currency held. They are all items with an underlying monetary nature.

 Interest, borrowing costs, bank charges, pensions, salaries, wages, rentals, etc. are generally paid and received in money, but they are not monetary items. They are not substitutes for units of internal currency held. They are all constant real value non-monetary items.

 They are not, in principle, substitutes for money held. Money is simply the generally accepted medium of exchange in the settlement of these items.

 A salary payable is an obligation to deliver compensation for the work done in terms of the employment contract by the salary earner in the form of payment in a mutually agreed generally accepted medium of exchange. The generally accepted mutually agreed form of payment is money. Payment can be in any mutually agreed form. A salary is not, in principle, a substitute for money held. A salary is not an item with an underlying monetary nature. The work to be done by the worker in terms of the employment contract is not an item with an underlying monetary nature.

 A rental payment is not a substitute for money held. A rental payment is a substitute for the right to occupy a particular space in terms of the rental contract. Money is simply the generally accepted medium of exchange. Payment can be in any mutually agreed form of payment. Payment can be in big Macs or cases of beer too.

Nicolaas Smith

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