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Tuesday, 31 January 2012

Dollar-indexation


Dollar-indexation

Updated on 11-11-2014
Dollar-indexation (indexing your fiat local currency values in terms of the daily USD parallel rate) is running your daily business and doing your daily accounting in terms of the US Dollar daily parallel rate or another foreign currency daily parallel rate during hyperinflation although you many never even receive or make payments in the US Dollar or another foreign currency.  

It is not the same as translating year-end financial statements prepared under Historical Cost Accounting in a hyperinflationary economy at the US Dollar exchange rate at the period-end date.

Dollar-indexation results in capital maintenance in units of constant purchasing power in terms of the daily US Dollar parallel rate which would maintain the constant purchasing power of capital relatively constant for an indefinite period of time in all entities that at least break even during hyperinflation – ceteris paribus.

Translating year-end HC financial statements at the year-end US Dollar rate does not result in capital maintenance in units of constant purchasing power.

‘The use of units of account separate from money has been known for millennia.’ (Shiller, R.J., 1998)

I developed Dollar-indexation during 1995 in Angola´s hyperinflationary economy and implemented it during 1996 in Auto-Sueco (Angola).

Before 11-11-2014 I mistakenly called Dollar-indexation by the name of accounting-dollarization. That was a mistake since the concept of "dollarization" implies that it is similar to an economy-wide central bank policy of dollarizing the economy. It is not.

Dollar-indexation can be implemented in a single company as I did at Auto-Sueco (Angola). It has nothing to do with the functions of the Central Bank. 

Nicolaas Smith

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