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, diamonds and emeralds, and art can also be monetized by Standby Letter of Credit brokers. 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 goods or services that were previously unprofitable.

Debt monetization

Debt monetization occurs when a nation's central bank (for example, the Federal Reserve in the United States) "buys" government bonds. If a government's expenses exceed its tax revenue, if nothing is done the government will draw resources (capital) out of the private market. Since there is a limited amount of capital available in the market, there will be less available to fund business growth if the government takes out a substantial portion. If the debt is monetized, the capital is thereby returned to the private market.

Excessive debt monetization can be inflationary, which in some eyes can be seen as a flat tax because the ultimate result is that the government acquires additional funds and the currency decreases in value.Fact: date=January 2008 However, monetization helps the government temporarily to meet its short term commitments at the beginning.Fact: date=January 2008 On the other hand, some degree of debt monetization is useful for increasing the money supply, to keep up with increased production or economic growth.

Hence it is a primary tool of the Federal Reserve in managing interest rates. Excessive debt monetization has the drawback 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 along with the budget deficit.Fact: date=January 2008

Revenue from business operations

In some industry sectors, monetization is a buzzword for adapting non-revenue-generating assets to generate revenue. Failure to monetize web sites was a problem that caused many businesses to fold during the dot-com burst. Web sites that do generate revenue are often monetized via advertisements or subscription fees.

Monetization of non-monetary benefits

Monetization is also used to refer to the process of converting some benefit received in non-monetary form (such as milk) into a monetary payment. The term is used in social welfare reform when converting in-kind payments (such as food stamps or other free benefits) 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 (say, a litre of milk) than the benefit in kind.

• Inefficiency: in the latter situation people who may not need milk cannot get something of equivalent value (without subsequently trading or selling the milk).