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Using Existing Receivables to issue money

In traditional debt-based monetary systems, money is typically created through lending, with banks issuing loans that simultaneously create money as a liability on their balance sheets. This process can lead to inflation, currency devaluation, and unsustainable levels of public and private debt. However, in a Credit-Based Monetary System, existing receivables offer a sustainable alternative for money creation. By using receivables—financial claims on future payments—governments and financial institutions can issue credit-based money, aligning the money supply with real economic activity rather than debt accumulation.

What Are Receivables?

Receivables are financial claims that a creditor holds against a debtor for goods or services provided but not yet paid for. These claims are recorded as assets on the creditor’s balance sheet, representing the expectation of future cash inflows. Receivables are typically considered current assets because they are expected to be converted into cash within a short period, usually within a year. They play a crucial role in liquidity management for businesses, as well as in the financial strategies of governments and banks.

The Concept of Using Existing Receivables to Issue Money:

Using existing receivables to issue money represents a fundamental shift in monetary policy. Rather than relying on debt issuance and borrowing, a Credit-Based Monetary System monetizes existing receivables—financial claims that are already linked to real economic transactions. These receivables become the backing for new money, ensuring that the money supply is directly tied to actual economic activity. This approach promotes economic stability, reduces inflation risks, and ensures that money creation reflects the productive capacity of the economy.

How the Process Works:

  1. Assessment and Valuation of Receivables:
    • The process begins with a comprehensive assessment and valuation of existing receivables in the economy. This includes evaluating receivables from businesses (invoices for goods or services rendered but not yet paid for), government contracts, taxes owed, and other financial claims. The valuation of these receivables determines the total amount of credit-based money that can be issued.
  2. Securitization of Receivables:
    • Once receivables are assessed and valued, they can be securitized. Securitization involves bundling receivables into financial instruments, which can then be sold or used as collateral. These securitized receivables provide the backing for the issuance of new money. This process ensures that money is issued against actual assets, not speculative debt.
  3. Issuance of Credit-Based Money:
    • Based on the securitized receivables, central banks or designated monetary authorities can issue new credit-based money. The amount of money issued is proportional to the value of the receivables. This money is then credited to the accounts of businesses, individuals, or government entities, providing them with immediate liquidity without increasing debt levels.
  4. Circulation of Money:
    • The newly issued credit-based money enters circulation through normal economic activities, such as the purchase of goods and services, investments, or public spending. As the underlying receivables are paid off by the debtors, the money remains in circulation, backed by completed transactions. This approach ties the money supply directly to real economic output.
  5. Monitoring and Adjusting the Money Supply:
    • The central bank or financial authority continuously monitors the status of receivables and the overall money supply. If necessary, adjustments can be made to ensure that the money supply remains aligned with real economic activity, preventing inflation or deflation. This dynamic management of receivables-backed money creation stabilizes the economy and ensures that money creation reflects productive activities.

Key Benefits of Using Existing Receivables to Issue Money:

  1. Stabilization of the Money Supply:
    • By linking money creation to receivables, this system ensures that the money supply is tied to actual economic value. This reduces the risks of inflation and devaluation, which are often associated with debt-based money creation.
  2. Reduction in Public and Private Debt:
    • Using receivables to issue money allows governments and businesses to generate liquidity without adding to debt burdens. This approach mitigates the unsustainable levels of debt accumulation seen in traditional monetary systems.
  3. Economic Resilience:
    • Since the money supply is directly tied to productive economic transactions, the system is more resilient to speculative bubbles and financial crises. Receivables-backed money reflects real economic activity, enhancing the stability of the financial system.
  4. Support for Economic Growth:
    • By providing immediate liquidity based on receivables, businesses and governments can finance operations, invest in new projects, and support job creation. This increased access to liquidity drives economic growth without increasing debt levels.
  5. Flexibility in Monetary Policy:
    • The ability to issue money based on receivables gives central banks greater flexibility in managing the money supply. This approach enables a more responsive monetary policy, tailored to the real-time needs of the economy.

Challenges and Considerations:

  1. Accurate Valuation of Receivables:
    • The success of this system depends on accurately assessing and valuing receivables. Overvaluation can lead to an oversupply of money, while undervaluation can restrict liquidity. Robust systems for evaluating receivables are essential to ensure that the money supply is properly calibrated to economic activity.
  2. Legal and Regulatory Framework:
    • A strong legal and regulatory framework is necessary to govern the securitization and use of receivables for money issuance. This includes ensuring the transparency of receivables transactions, protecting creditor and debtor rights, and maintaining the integrity of financial markets.
  3. Risk Management:
    • While using receivables reduces the risks associated with debt-based money creation, it introduces new risks related to the performance of receivables. Effective risk management strategies are required to mitigate these risks, including the possibility of receivable defaults.

Types of Receivables Used for Money Issuance:

  1. Government Receivables:
    • Governments hold substantial receivables in the form of taxes owed, contracts, and other financial obligations. These receivables can be securitized and used as the backing for new money. By monetizing these receivables, governments can finance public spending without increasing national debt.
  2. Corporate Receivables:
    • Businesses often have large amounts of receivables from customers who owe payments for goods and services delivered. These receivables can be securitized, allowing businesses to access liquidity by using their receivables as collateral for the issuance of credit-based money.
  3. Consumer Receivables:
    • Consumer receivables, such as loans, credit card balances, and installment payments, can also be securitized and used to issue money. This approach provides additional liquidity in the economy and helps support consumer spending.

Examples of Using Existing Receivables to Issue Money:

  1. Factoring and Securitization:
    • Factoring is a common practice where businesses sell their receivables to a third party (factor) at a discount, receiving immediate cash in return. The factor then collects the receivables from the debtor. In a Credit-Based Monetary System, this process is elevated to a national or central bank level, where receivables are securitized and used as the foundation for issuing credit-based money.
  2. Government Securitization of Tax Receivables:
    • Governments can securitize receivables such as taxes owed by businesses and individuals. By doing so, they can raise funds for public spending or infrastructure projects without issuing bonds or borrowing from financial markets. The receivables-backed money remains stable because it is tied to the government’s ability to collect taxes.

Transitioning to a Receivables-Based Money System:

  1. Public and Private Sector Cooperation:
    • Governments, businesses, and financial institutions need to collaborate in the development of a system for securitizing receivables. A clear regulatory framework and infrastructure for trading receivables-backed financial instruments are essential to facilitate this transition.
  2. Legal and Institutional Reforms:
    • Legal reforms are necessary to allow for the securitization of receivables and their use as collateral for money issuance. Institutions responsible for managing the securitization process, such as central banks or designated financial authorities, must be equipped to handle this new role.
  3. Education and Public Awareness:
    • Educating businesses, financial institutions, and the public about the benefits of receivables-backed money is crucial. Clear communication on how the system works and its advantages over traditional debt-based money creation can help foster trust and ensure successful implementation.
  4. Pilot Programs and Gradual Adoption:
    • Pilot programs can be used to test the system, allowing for adjustments before full-scale implementation. Gradual adoption ensures that potential challenges are addressed and the transition to receivables-backed money is smooth.

Conclusion

Using existing receivables to issue money presents a sustainable and stable alternative to debt-based money creation. By linking the money supply to real economic transactions through securitized receivables, this system reduces debt accumulation, mitigates inflation risks, and supports long-term economic growth. The transition to a receivables-backed money system requires collaboration, robust legal frameworks, and careful management, but it offers significant benefits for both governments and businesses

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