I wonder, what would be a real world example of the two-entities double entry you called Novation? Here the Payor for granted promises to pay for the payee. That is the Payor would for granted increase his payables for the account of the Payee payables. Or is it just a building block for the quadruple entries that are real world deals?
Novation is common in the world of derivatives and insurance, where one entity takes over another entity's liability. A little bit abstractly, you could also think of the public moving from holding deposits at commercial banks to holding central bank digital currencies: conceptually, that is rather like a novation from the banks to the central bank.
《because banking transactions almost always use borrowed funds, assets and liabilities do balance, and so it is often not necessary to use an equity entry.》
Isn't it odd to abstract away the very reason firms exist from your analysis?
《between entities, every asset must be someone else's liability and vice versa.》
Does rehypothecation, where liabilities become assets, pose problems for this analysis?
No, I don't think it's odd. a) I'm not sure I agree that equity is the reason firms exist, and b) in many monetary transactions equity is not really a factor, even if it is present in the background.
I have some thoughts about rehypothecation in the context of repo, which I hope to get written down soon.
I wonder, what would be a real world example of the two-entities double entry you called Novation? Here the Payor for granted promises to pay for the payee. That is the Payor would for granted increase his payables for the account of the Payee payables. Or is it just a building block for the quadruple entries that are real world deals?
Novation is common in the world of derivatives and insurance, where one entity takes over another entity's liability. A little bit abstractly, you could also think of the public moving from holding deposits at commercial banks to holding central bank digital currencies: conceptually, that is rather like a novation from the banks to the central bank.
《because banking transactions almost always use borrowed funds, assets and liabilities do balance, and so it is often not necessary to use an equity entry.》
Isn't it odd to abstract away the very reason firms exist from your analysis?
《between entities, every asset must be someone else's liability and vice versa.》
Does rehypothecation, where liabilities become assets, pose problems for this analysis?
No, I don't think it's odd. a) I'm not sure I agree that equity is the reason firms exist, and b) in many monetary transactions equity is not really a factor, even if it is present in the background.
I have some thoughts about rehypothecation in the context of repo, which I hope to get written down soon.