Thursday, 20 March 2008

What is the real value of money?

The real value of money within an economy or monetary union is determined by all the underlying value systems within that economy or monetary union.

The daily changes in the real value of money are determined by the daily changes in the rate of inflation or hyperinflation or deflation as indicated by the Daily CPI.

Daily indexing of all monetary items within the banking system in terms of the Daily CPI eliminates the EFFECT of inflation, hyperinflation or deflation within an economy or monetary union. It does nothing immediately to inflation, hyperinflation or deflation. 

Daily indexing of all constant real value non-monetary items in terms of the Daily CPI removes the EFFECT of the stable measuring unit assumption within an economy implementing the nominal Historical Cost paradigm during inflation, hyperinflation and deflation.

Variable real value non-monetary items´ real values are determined in terms of fair value - generally in free and open markets. Daily indexing of these values in terms of the Daily CPI between fair valuing them in the market keeps their real values up to date with daily changes in the general price level.

Updated on 29 May 2016

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Copyright (c) 2012 Nicolaas Smith

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