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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