From: M Holmes 
Newsgroups: uk.finance
Subject: Re: Bank lending policy
Date: Thu, 19 May 2005 16:11:16 +0000 (UTC)

Tim  wrote:
> "M Holmes" wrote

> To try to avoid confusion, let's say coins & notes are minted in "guineas"
> (rather than pounds sterling), whereas bank accounts are held in pounds.
> Let's say that a "guinea" is worth 1.05 GBP (at the time it is minted).
> Let's suppose there's a constant negative interest rate of 12.945% pa.

> A bank account with 420 GBP in it in 2000, with no deposits/withdrawals,
> will end up with 105 GBP ten years later in 2010 after the negative interest
> rate has reduced the balance to a quarter of its previous amount.
> Four hundred "guineas" minted in 2000 (then 'worth' 420 GBP) will, in 2010,
> be taken to have the same value as *one* hundred "guineas" minted in 2010.
> So they'd be 'worth' 105 GBP in 2010.

The simple answer is that nbody is going to do calculaions based on the
date of minting of a note just to buy a beer and that if a Pound smeone
gets in wages can't be spent as a Pound later then they're going to
start asking for wages in silver, gold, or Reeboks.

There have been lenty of deflations in the world. That one has never
flown. Butchery of the currency has though quite often led to repudiation
and a flight to gold.

Needless to say, the currency being repudiated creates sufficient new
problems that deflation becomes a niggling wory.

FoFP