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Thursday, 8 November 2012

The Daily Index Plan: A monetary and accounting plan

The Daily Index Plan: A monetary and accounting plan

The plan is called the Daily Index Plan because the daily index is the common factor in maintaining both the monetary and constant item economies constant. It is different from (better than) the Unidade Real de Valor daily index as well as from the Real Plan monetary reform implemented by Brazil in 1994.


The Daily Index Plan is not simply a daily index like the URV was and it is also not exactly the same as the Real Plan. It is a combination of principles and concepts which were used in both the URV daily index and in the Real Plan monetary reform. But it is neither simply the one nor simply the other and it is also not a simple combination of the two.

The Daily Index Plan is a combination of principles and concepts used in the URV and Real Plan plus capital maintenance in units of constant purchasing power in terms of a Daily Index.

The principles and workings of the Daily Index Plan are so mathematically correct and logical in real value that I am now completely confindent in stating that it can be used to stop the total effect of hyperinflation – not actual hyperinflation in bank notes and coins (their nominal values are still permanently printed on them) – in the monetary economy as well as the very destructive effect of the stable measuring unit assumption in the constant item economy overnight at no cost when the plan is implemented correctly with complete coordination.

The crucial factor is the fact that the US Dollar daily rate is used as the index. Then, logically (mathematically), a constant local currency is always exactly equal to the US Dollar. So, you are effectively running your economy in US Dollars (Dollarization) when you daily index your complete local currency money supply and all constant items in your economy to the daily US Dollar rate. We all know Dollarization stops hyperinflation overnight, but at the cost of having sufficient US Dollars available overnight.

Because you use a constant local currency you can still have hyperinflation when someone injects too many nominal local currency units into the economy, but the Daily Index Plan would always remove the total cost of hyperinflation as well as the total cost of the stable measuring unit assumption from the economy under complete co-ordination.

With the Real Plan in 1994 (which was only a monetary reform plan – Brazil actually went back to Historical Cost Accounting – a step backwards, but that is another story) the actual URV index was changed into a new currency - the Real currency. The previous currency was withdrawn from circulation, but the URV index was almost 100 percent constructed with (made up of) the official (not a parallel) Daily US Dollar rate in Brazil and the population was already used to (for 30 years) working with daily indexing with the URV and other government-supplied daily indices. This was all done by the Brazilian Government via the Central Bank of Brazil. Well, the Central Bank was completely independent because the head of state was not involved (not interested) in the workings of the Central Bank at all.

It is thus possible to stop the total effect of low inflation, high inflation, hyperinflation and deflation and the stable measuring unit assumption overnight at no cost in any economy. The accounting part was the important part that  was missing (the weakness) in the Real Plan. The Daily Index Plan is thus the complete economic plan: a better plan than the Real Plan. The Real Plan was only a monetary reform. The Daily Index Plan is a monetary and a fundamental accounting – an economic – reform plan.

 

Nicolaas Smith

Copyright (c) 2005-2012 Nicolaas J Smith. All rights reserved. No reproduction without permission.

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