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Thursday, 7 July 2011

Items with an underlying monetary nature

Items with an underlying monetary nature
Utility, scarcity and exchangeability are the three basic attributes of an economic item which, in combination, give it economic value. All economic items are exchangeable and money is generally the medium of exchange. All economic items thus have monetary values in an economy using money as the monetary unit of account. Both monetary items and non–monetary items are expressed in monetary terms; i.e. in terms of the monetary unit. The monetary unit is used as the medium of exchange, unit of account and store of value. Variable real value non–monetary items, constant real value non–monetary items and monetary items are all expressed in terms of money and have monetary values.

There is, however, a difference between having a monetary value and being a monetary item. All economic items have monetary values, but, only money and items with an underlying monetary nature are monetary items. Non–monetary items have monetary values: they have their values expressed in terms of money, but, they are not monetary items.

Houses, cars, mobile phones, raw materials, etc. have monetary values, but they are not monetary items. They are variable real value non–monetary items whose real values are expressed in terms of depreciating or appreciating money depending on whether the economy is in a state of inflation or deflation.

Likewise salaries, wages, rentals, pensions, interest, taxes, retained earnings, issued share capital, capital reserves, all other shareholder equity items, trade debtors, trade creditors, deferred tax assets and liabilities, taxes payable and receivable, etc. have depreciating or appreciating monetary values, but they are not monetary items. They are constant real value non–monetary items whose constant real non–monetary values are expressed in terms of depreciating or appreciating money. Constant real value non–monetary items´ real values are maintained constant with financial capital maintenance in units of purchasing power during inflation and deflation, i.e., with Constant Item Purchasing Power Accounting.

Examples of items with an underlying monetary nature

Money loans
Mortgage bonds
Government Bonds
Commercial Bonds
Treasury Bills
Consumer loans
Bank loans
Car loans
Student loans
Credit card loans
Notes Payable
Notes Receivable

They are accounted monetary items of money lent or borrowed, payable or receivable in money.   Only monetary items to be paid or received in money are monetary items. Variable real value non–monetary items and constant real value non–monetary items to be paid or received in money remain variable real value non–monetary items and constant real value non–monetary items. Money is simply the monetary medium of exchange used to transfer the ownership of a variable real value non–monetary item or constant real value non–monetary item from one entity to another.

Items with an underlying monetary nature have exactly the same attributes as money held with the exception that they are not 100% liquid.


Nicolaas Smith

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