IFRS and US GAAP authorised CMUCPP automatically maintains the constant purchasing power of constant real value non-monetary items (e.g. capital, all items in shareholders´ equity, provisions, salaries, wages, pensions, taxes, trade debtors/creditors, etc) only when updated in terms of the Daily CPI during low and high inflation, hyperinflation and deflation - ceteris paribus. European Accounting Association: "Capital maintenance is a competing objective of financial reporting."
Chile, with less than one tenth of France´s GDP, has a bigger government inflation-indexed bond market. Chile´s 44-year history of inflation-indexing monetary items in terms of the Unidad de Fomento, which is a monetized daily indexed unit of account, most probably had a strong influence on this state of affairs. Chile was not plagued by hyperinflation and did not have to resort to Dollarization during that period while some of their regional neighbours had to.
Both Turkey´s and Brazil´s relatively big sovereign inflation-indexed bond markets may be a result of their recent experiences with hyperinflation. Brazil did not inflation-index a significant portion of their broad money supply - like Chile currently does – during their 30 years of very high and high inflation from 1964 to 1994, but, they measured most non-monetary items in their non-monetary or real economy daily in terms of a daily government supplied non-monetary index.
Both Brazil and Turkey have first-hand experience of how rapidly hyperinflation can destroy the purchasing power of money and other monetary items.
Nicolaas Smith Copyright (c) 2005-2011 Nicolaas J Smith. All rights reserved. No reproduction without permission.