A little thought experiment!
Expection:
We create a currency that is not stopping inflation, but which is slowing down inflation's negative effects. Effects like volatility.
Thought experiment #1:
- Currency A - 30 % increasing money supply/year
- Currency B - 5 % increasing money supply/year
The rules are:
- We have an average income per capita. Everybody with an income higer than 0.7 of the average income per capita is just allowed to use currency A.
- We have an average income per capita. Everybody with an income lower than 0.7 of the average income per capita is just allowed to use currency B.
- Additional everybody who is owning more value/money/goods 2.0 of the average income per capita is just allowed to use currency A.
- It is forbidden to exchange both currency with each other.
- All goods and services are pegged on the value (A+B)/2 ----- (Currency A plus Currency B divided by two)
- Every year every person is rated which currency the person can use.
Result:
What is your opinion? Would this mitigate negative effects of inflation for most vulnerable in our society? Would this work in your eyes? Which problems are you spotting?
The idea is cool. And... it's already been implemented in a sense... And you see, the effect is nil!
And now more details ! Have you been as a tourist in Cuba? I highly recommend that you go once to see how the scheme you suggested works.
Cuba has even 3 currencies! Yes yes, I didn't misspell.
That:
- The Cuban peso. With which you can buy something, but the choice is very limited.
- The Cuban convertible peso (Peso cubano convertible), or in common parlance, the kuk (CUC)
- U.S. dollar.
And their circulation is limited by rules close to yours, in fact.
Bottom line is :
- The useless PESO - for the local masses.
- The more interesting CUC. This is essentially Cuba's second, parallel currency, which served as a replacement for dollars and was originally intended for foreign tourists and diplomats. That is, a kind of "elite currency" with which you could eventually buy a lot more goods! Yes yes, for the peso, you are given many orders of magnitude less goods than for the CUC.
- And the most desirable thing for Cubans, but actually forbidden to them, under threat of criminal prosecution, is the U.S. dollar. This is for the "upper caste" - the tourists, the elites, who need to be shown how happy and good it is to live in Cuba! For dollars in Cuba you can practically do anything! But the "real paradise" is not for the local population....