A modern monetary circuit is not born until a return is tallied. Reasons for money retirement, the eventual return of money to its issuer are its acceptance and will be established before issuance. Only once return is established will credit flow as accounting transactions; both government and commercial credit moves around a circuit, always coming from somewhere, always going somewhere.

In the generally received model of capitalism a bank opens the monetary circuit when the corporate sector decides to begin production. To simplify, the banking sector creates bank credit for corporations, wages are paid, goods and financial securities are purchased, until finally, corporations repay their debt and the circuit is closed.

Market-Based Banking

Endogenous money in market-based finance traces an anomalous monetary circuit. Credit organises around asset securities and derivatives markets. Shadow money is born as a repurchase (repo) transaction - as a sale of securities (the collateral) with the promise to buy back. Shadow money (brought into being to finance securities) is the debt of asset backed securities traders. Shadow money is the debt collateralised by the very securities that it finances.

To model credit creation has value for theorising the consequences of monetary circuit evolution. However, real world cross-border entities and their activities will resist being modelled explicitly. Simply, there can be no model of a system in which the rules of the game (financial innovation) change while the game is underway. Ephemeral balance sheets remain concealed until one game ends and another starts - and no-one knows precisely when that will be.