The duration of Iran´s hyperinflation?
Hyperinflation was defined by the International
Accounting Standards Board in IAS 29 Financial
Reporting in Hyperinflationary Economies, Par. 3 in 1989 as cumulative
inflation over three years approaching or exceeding 100 percent; i.e., 26
percent annual inflation for three years in a row.
This is the generally accepted definition of
hyperinflation since 1989 followed by millions of accountants in all countries
(more than 140) implementing International Financial Reporting Standards. It is
also the definition followed by the American Institute of Certified Public
Accountant´s Centre for Audit Quality´s International Practices Task Force and
the US Securities and Exchange Commission.
Brazil was in very high and hyperinflation during 30
years from 1964 to 1994 according to the Central Bank of Brazil. According to
Gustavo Franco, the ex-Governor of the Central Bank of Brazil and one of the
architects of the very successful Real
Plan, just his team took 10 years from 1984 to 1994 to finally beat
hyperinflation with the Unidade Real de
Valor daily index and the Real
Plan.
Venezuela has been in hyperinflation since November
2009. On 17 December 2009 PricewaterhouseCoopers
issued the following statement.
“Venezuela
enters hyperinflation
Inflation in
Venezuela has been high for a number of years, and cumulative inflation for
three years ending 30 November now exceeds 100%. Venezuela should therefore be
considered a hyper inflationary economy, and IAS 29, Reporting in hyperinflationary
economies, should be applied by entities in Venezuela in financial statements
for the year ending 31 December 2009.”
The duration of Iran´s hyperinflation?
The question about how long Iran will stay in
hyperinflation is thus not very easy to answer. Iran can stop the effect of hyperinflation
overnight at no cost with the Daily
Index Plan which is based on Brazil´s 1994 Real Plan. The Real Plan
did not use very costly Dollarization to stop hyperinflation. Instead it
applied the principles used under Dollarization to stop hyperinflation without costly
Dollarization. The Real Plan marked
the end of the use of very costly official Dollarization or an equally costly
currency board as solutions for hyperinflation.
The Daily Index
Plan has two parts:
- Capital maintenance in units of constant purchasing power in terms of a Daily Index as authorized in IFRS twenty three years ago and
-
2. Inflation-indexing the entire money supply on a daily basis.
Both part 1 and 2 would currently be done in terms of
the daily US Dollar free-market (parallel) rate in Iran.
The Daily Index
Plan is guaranteed to stop the
effect of hyperinflation in Iran (or high and hyperinflation in any other
economy) at no cost and stabilize the economy.
The Daily Index
Plan is recommended for the following countries in hyperinflation:
Belarus
Venezuela
Islamic Republic of Iran
Democratic Republic of Congo
The Daily Index
Plan is recommended for the following countries in high inflation:
Ethiopia
Sudan
Guinea
Republic of Yemen
When the US Dollar free-market daily rate is used as
the Daily Index then the economy would be Dollarized without the US Dollar
under the Daily Index Plan: the
economy would be Dollarized in a constant real (not nominal) value local
currency unit maintained constant by the US Dollar daily free-market rate (under
the responsibility of the US Federal Reserve) as Daily Index under the Daily Index Plan. The constant real
(not nominal) value local currency unit would always be exactly equal to the US Dollar in the free-market under these
circumstances.
All indications are that actual hyperinflation would fall to very low inflation under the Daily Index Plan like it happened under
the Real Plan in Brazil in 1994. It
is, however, guaranteed that the Daily Index Plan would remove the effect of hyperinflation at any
level of hyperinflation. You cannot negate maths.
Nicolaas Smith
Copyright (c) 2005-2012 Nicolaas J Smith. All rights reserved. No reproduction without permission.
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