Valuing monetary items
Financial
reporting values and accounts unstable monetary items on recognition at their
nominal values in nominal monetary units under all accounting models. Monetary
items are then valued daily in fixed nominal monetary units (unstable in real
value) only during the current financial period under financial capital
maintenance in units of constant purchasing power (CIPPA) and the net monetary
loss or gain is, logically and necessarily, calculated and accounted
All historical
monetary items are inflation-adjusted daily in terms of the current (today´s)
Daily CPI thereafter, i.e., once they are reported in historical financial
reports, whether for comparison purposes or not. The historical net monetary
loss or gain (a constant real value non-monetary item once accounted) is
thereafter measured in units of constant purchasing power in terms of the
current (today´s) Daily CPI or other daily rate over time.
Low inflation,
high inflation, deflation and hyperinflation determine the always current generally
unstable real value of the unstable monetary unit (US Dollar, Euro, British
Pound, Bolívar, Yen, Yuan, etc.) and other unstable monetary items within each
country´s monetary economy.
The real value of
money held and other unstable monetary items changes equally (all unstable
monetary items are affected evenly) on a daily basis at all levels of inflation
and deflation. The change is quantified with the daily publication of the Daily
CPI or monetized
daily indexed unit of account value during low inflation, high inflation
and deflation and the daily US Dollar or other hard currency parallel rate or
Brazilian-style daily Unidade Real de
Valor during hyperinflation. The daily black
market or parallel US Dollar exchange
rate or street rate is generally
constantly (24/7, 365 days a year) available in a hyperinflationary economy.
The Daily CPI is an internal non-monetary index rate
between the unstable real value of a fixed nominal monetary unit and a unit of
constant real value within an economy. The daily parallel US Dollar (or other
hard currency) exchange rate or a Brazilian–style Unidade Real de Valor daily index rate fulfills this role in a
hyperinflationary economy.
The nominal values
of bank notes and coins currently (2012) cannot be changed daily on the notes
and coins. Inflation and deflation always affect the real value of bank notes
and coins and all other monetary items. Inflation-adjusting the total money
supply would eliminate the entire cost of inflation or hyperinflation (not
actual inflation or hyperinflation) from the monetary economy. This would
require complete co-ordination. 20 to 25 per cent of the broad M3 money supply
in Chile
Months of zero annual inflation are rare and generally
not sustained for more than a month of two. During hyperinflation the real
value of the very unstable monetary unit and all other very unstable monetary
items often changes once per day. Prices can double every 24.7 hours during hyperinflation
as happened during severe hyperinflation in Zimbabwe
The real values of monetary items inflation-adjusted
daily are still affected by inflation and deflation, but by inflation-adjusting
or deflation-adjusting them their real values are maintained constant by
contract. The capital amounts of inflation-indexed bonds have constant real
values over time during inflation. They are, however, not constant real value
monetary items in principle. That would only be the case at permanently
sustainable zero inflation. Inflation and deflation thus always affect the real
values of all monetary items within an economy. The real values of monetary
items inflation-adjusted daily are maintained constant by contract.
Copyright (c) 2005-2012 Nicolaas J Smith. All rights reserved. No reproduction without permission.
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