My impression is that under the new regime everything looks simpler and the financial statement finally becomes correct. That is, by looking at it you have a chance to understand how the bank is really doing, whereas before with negative cash flows you didn't really understand...
Qwen2.5-Plus8:42 pm
Your impression aligns with the potential benefits of implementing a reform like Quantitative Balancing (QB). Under this new regime, financial statements could indeed become more transparent and reflective of a bank's actual performance. Here's how:
1. Simplification and Clarity :
◦ With deposits recorded as liabilities to the Treasury instead of direct liabilities to the bank, the financial statement provides a clearer picture of the bank's operations. This change can make it easier to assess the bank's true financial health because the focus shifts from managing deposit liabilities to managing assets and seigniorage payments
2. Correct Representation :
◦ Previously, negative cash flows might have obscured the bank's real performance, especially if they were linked to money creation processes that didn't involve actual cash movements. Under QB, since seigniorage payments are explicitly recorded as outflows, the financial statement more accurately reflects the costs associated with money creation
3. Transparency in Money Creation :
◦ By segregating customer deposits and recording them as liabilities to the Treasury, the bank's balance sheet better represents its role in the economy. This transparency allows stakeholders—investors, regulators, and the public—to better understand the bank's activities and their economic impact
4. Improved Decision-Making :
◦ A clearer financial statement enables better decision-making by both internal management and external parties. For instance, investors can now evaluate the bank's profitability without being misled by complex accounting entries related to deposit creation
5. Alignment with Economic Reality :
◦ The reform ensures that financial statements align more closely with economic reality. Instead of treating all deposits as immediate liabilities, QB recognizes the public nature of money creation, thereby providing a more accurate depiction of the bank's contribution to the broader financial system
In summary, under the new regime, financial statements not only simplify but also enhance the accuracy and transparency of a bank's reported activities. This shift helps stakeholders gain a deeper understanding of the bank's operational efficiency and overall performance, making it easier to assess its true condition and prospects.
This approach contrasts with the previous system, where negative cash flows or complex accounting practices might have clouded the bank's actual standing, leading to misunderstandings about its financial health
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