Zero Erosion Economy
The Daily Index Plan would result in zero erosion of real value in:
1. Constant items in the
constant item economy, e.g. salaries, wages, rentals, capital, trade debtors,
trade creditors, taxes payable, etc. since all these items would be indexed
daily in terms of the Daily CPI or USD daily parallel rate. They would
automatically always have constant real values over time since the stable
measuring unit assumption is never implemented under capital maintenance in
units of constant purchasing power.
2. Real price increases and decreases in the variable item economy (e.g. property, plant, equipment,
inventories, foreign exchange, etc.) generally determined in free markets with
these prices updated daily in terms of the Daily CPI or daily USD parallel rate
when they are not determined in the free market on a daily basis in terms of
IFRS excluding the stable measuring unit assumption under capital maintenance
in units of constant purchasing power.
3. Zero erosion in monetary items
in the monetary economy - excluding bank notes and coins outside the banking
system - since all monetary items, as qualified, would be inflation-indexed on
a daily basis in terms of the Daily CPI or daily USD parallel rate. All
monetary items in the banking system would be inflation-indexed on a daily basis
resulting in zero erosion of real value in monetary items in the banking
system.
Definition
Monetary items are local
currency units held and items with an underlying monetary nature being
substitutes of the former.
Examples of monetary items that are not local currency units held are money
loans, consumer loans, home loans, car loans, student loans, the capital
amounts of bonds, the capital amounts of money market and capital market
instruments, notes payable, notes receivable, etc. when these items are not in
the form of local currency units held.
The Daily Index Plan constitutes
(A) capital maintenance in units of constant purchasing power as authorized
in IFRS and
(B) daily inflation-indexing of the entire money supply, both in terms of
the Daily CPI or daily USD parallel rate.
The Daily Index Plan would result in zero erosion of real value in (1) constant items as a result of measuring
all constant items in units of constant purchasing power and (2) constant real
value monetary items as a
result of daily inflation-indexing the entire money supply excluding bank notes
and coins outside the banking system with both (1) and (2) in terms of a Daily
CPI or daily USD parallel rate.
In practice it would result in a Zero
Erosion Economy (ZEE) at whatever rate of inflation or deflation. Inflation
would generally fall to very low levels under the Daily Index Plan since the
monetary effect (nature) of money is completely compensated for in a fully
inflation-indexed money supply economy under IFRS-authorized capital
maintenance in units of constant purchasing power in terms of a Daily Index
with complete co-ordination.
Nicolaas Smith
Copyright (c) 2005-2012 Nicolaas J Smith. All rights reserved. No reproduction without permission.
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