Inflation is about the value of money, not prices. Prices rise after the value of money falls. To avoid inflation, limit your exposure to money that’s losing value.

Individuals | Companies | Nation-states | Financial Institutions

Individuals

To avoid inflation in your home country, act like a tourist by avoiding the local currency. When Zimbabwe had hyperinflation, tourists and expatriates didn’t mind because they didn’t own Zimbabwe dollars. The average tourist kept their wealth in another currency and each week or day converted some of their wealth into the local, depreciating currency. You can mimic the actions of a tourist with a few key steps.

1. Your salary

You are likely paid with a currency that is losing value each year. If that currency declines five percent during a year, then your salary declined five percent. Unless you negotiate a five percent raise, you will earn less the next year. The solution is to base your contract on something that is not declining in value at all or as much, such as another currency, a commodity, or a basket of commodities that holds value. This is called indexing and is common with cross-border employment that involves two national currencies.

1. If you negotiate a $1,000 monthly salary, calculate the worth in your preferred money commodity. If you think wheat is not losing value (because people still like bread), then calculate the value of $1,000 in wheat. Let’s say one dollar buys one bushel of wheat. Then your contract would be for 1,000 bushels of wheat, though you’d still be paid in dollars.
2. When it’s time to get paid each month or every two weeks, you and your employer would calculate the cost of 1,000 bushels in dollars. If one dollar buys only 0.5 bushels of wheat, then $1,000 is worth 500 bushels of wheat. Since your salary is 1,000 bushels of wheat, your payment would be $2,000, the amount required to purchase 1,000 bushels of wheat. Your salary is the same in terms of what you can actually buy. Only the dollar amount changed. You are no richer and the company is not poorer. You didn’t get a higher salary in terms of wealth. Through indexing, you only maintained the value of your salary. Learn more.

2. Measurement and valuation

You have complete monetary choice when it comes to calculating the value of things. When you travel to another country, you would, in your mind, convert prices into your home country’s currency so you could understand the cost. Similarly, you can convert prices in your home country into prices measured in real products.

Profits and prices measured in dollars can be misleading. A person might buy a home for $100,000 and sell it for $200,000, or two times the dollar price, but lose wealth because prices of everything else generally rose three times. Avoid this confusion by measuring the value of products,  your salary, or a home in another real product to see the “real price” or to understand something’s true worth.

For example, assume you live in an area with high inflation and you get a new job with a salary 25 percent higher than your current job. You go from earning $20,000 in 2011 to earning $25,000 in 2012, or $5,000 more. However, if the prices for everything rose 25 percent, than you are no better off.

To better measure value, you could measure your salary in a real product, such as pounds of wheat. You could calculate that in 2011 a pound of wheat cost $1, meaning $20,000 is worth 20,000 pounds of wheat. In 2012, the price of wheat rises to $1.25, meaning your salary is still worth 20,000 pounds of wheat. You are not making more wealth in terms of wheat.

You could apply this calculation to the price of gas, bus fares, airline tickets, housing prices, etc.

4. Your freedom

Promote legislation that give you more monetary freedom, and vote for supportive politicians.

• Free Competition in Currency Act 2011 (PDF), HR1098
• Federal Reserve Transparency Act of 2011 (PDF), HR 459
• S.1287 – Sound Money Promotion Act

Companies

Salaries: Allow employees to tie or index their pay to the cost of a basket of items. We can help create the basket  and explain to employees the pros and cons of this pay arrangement.

Product & Service Pricing: Avoid signing a long-term contract in money that’s losing value. Tie the cost of your products and services to basket of precious and base metals. This can be done with leases as well.

Nation-States

Multiple Currencies: Allow citizens to use any product as money. Remove or change sales taxes and capital gains taxes so people are not taxed more when using a product for indirect exchange or a store of value, compared with using fiat tokens. Then watch as millions of market transactions reveal what people prefer in your area to use as media of exchange.

• An Iceland Monetary Solution: Monetary Choice

Financial Institutions

Valuation: Allow customers to value their government currencies in other products. It’s common to let people value stocks in government money such as the dollar. A person with 10 shares of stock might see those 10 shares are worth 100 dollars. Make the reverse possible. Let people value a dollar account in gold, silver, a basket of commodities, or even movie tickets. When your customers see the declining value of government money, they will be more likely to exchange the government money for gold, silver, ETFs, stocks, etc.

Monetary Choice can help with all of these suggested actions. Contact us.

—————————————-

Note: All information is for informational purposes only. Speak to your financial adviser or accountant for personalized advice.

•