‘Inflation is always and everywhere a monetary
phenomenon,’ per Milton Friedman.
‘Purchasing power of non monetary
items does not change in spite of variation in national currency value.’
Gucenme, U. and Arsoy, A. P.
(2005). Changes in financial reporting in Turkey, Historical Development
of Inflation Accounting 1960 – 2005. Special Issue Accounting for the Global and
the Local: The Case of Turkey. Critical Perspectives on Accounting, Volume
20, Issue 5, July 2009, p. 568–590.
Deflation increases the real value of only unstable money
and other unstable monetary items over time. Deflation has no effect on the
real value of non–monetary items.
The entire money supply can be inflation–adjusted or
deflation-adjusted on a daily basis in terms of a Daily Consumer Price Index or
a monetized daily indexed unit of account during low and high inflation and
deflation. This would be done in terms of a relatively stable foreign currency (normally
the US Dollar) daily parallel rate or a daily Brazilian-style Unidade Real de Valor (URV) index during hyperinflation. Inflation-adjusting
the entire money supply on a daily basis would remove the entire cost of
inflation - not actual inflation - from the total money supply in the case of
complete co-ordination (everybody doing it). According to the Banco Central de Chile 20 to 25 per cent
of Chile´s broad M3 money supply is inflation–indexed daily (2011) in terms of the
Unidad de Fomento which is a
monetized daily indexed unit of account.
‘A
more extended measure of money, as M2 or M3, includes inflation indexed assets,
but they are expressed in Chilean pesos. In M3, those assets are roughly 20 to
25% of total.’ (Banco Central de Chile, 2011)
Nicolaas Smith
Copyright (c) 2005-2012 Nicolaas J Smith. All rights reserved. No reproduction without permission.
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