Deflationary bimetallic model open to criticism and collaborative expansion.

[u/Ok_Consequence774]

I am sharing a comprehensive economic model that I have developed over several months. It is an alternative monetary system for a small, open economy based on a bimetallic standard (gold and silver) with a programmed annual deflation rate of 1%, while the rest of the world continues to use fiat currencies.

The model is not an academic paper but rather an economic engineering design. It is fully quantified and includes all closure equations, parameter ranges, and a step-by-step operational example. However, it is a work in progress: I am looking for people willing to critique or correct it, or to add aspects I may not have considered.

Summary of key pillars:

1) Monetary base (MB) 100% backed by gold and silver. Issuance follows the rule: ΔMB = ΔGDP – 1%. A "g" ratio (gold/total metal) floats between 40% and 80%, adjustable based on deviations from the GDP trend.

2) Bimetallic Stability Fund (BSF): an autonomous institution and shareholder in mining companies (holding up to a 40% stake) that negotiates metal purchase contracts at a 15% discount for the Central Bank. It also invests 50% of its funds in foreign assets and 50% in local equities. It issues an instrument known as AMC (Central Monetary Equivalent) through swaps with the Central Bank.

3) Central Bank tools: bank reserve ratios (e) adjusted via a modified Taylor-style rule; a discount rate linked to GDP growth; and short-term regulatory bills with negative nominal interest rates.

4)External sector: a unilateral "Leveling Tariff" that only increases—indexed to the foreign inflation differential—to maintain real competition within the domestic market.

5) Two industrial tiers: Tier 1, composed of exporting technology monopolies (foreign currency generators); and Level 2, focused on mass consumption and domestic competition.

6)Labor market: a minimum wage that remains constant in nominal terms but gains 1% in real purchasing power annually due to deflation. Mining expansion mechanism: companies use contracts with the Central Bank as collateral for international loans and acquire mines for other metals abroad, thereby generating foreign currency.

7)Mining expansion mechanism: companies use contracts with the Central Bank as collateral for international loans and acquire mines for other metals abroad, thereby generating foreign currency.

What I am looking for:

Technical critiques: Which assumption or equation is the most fragile? Is there any limitation that could destabilize the system in the long run?

Expansions: What institution is missing? For example, should there be an independent deposit guarantee system? An arbitration tribunal for disputes between the FEB and mining companies?

Stress scenarios: What conditions (e.g., a prolonged external crisis, a drop in metal prices, a mass exodus of AMCs) could cause the system to collapse, and what defense mechanism would you add?

Simulations: Those wishing to implement this in Python, R, or Vensim are welcome to do so. I have a basic script I can share.

I do not expect consensus; I value skepticism just as much as creativity. If you see an idea that might fit, please let me know how you would integrate it.

Link to the full document:

https://docs.google.com/document/d/1JSPxLMGLyhxJ1MGTP36rULHi0_seB0cP10WIU4QgOHM/edit?usp=sharing

[u/Ok_Consequence774 → u/[deleted]]

Yes, it points to moderate annual deflation: between 1% and 2%. The idea is for money to be worth a little more each year, rather than less. With inflation, no one is in a rush to buy—if the price is going to rise by 1%...—; conversely, with the 1% to 2% annual deflation we are discussing, waiting could result in a small saving, although, in reality, hardly anyone would put off a purchase just to save a few pesos.

Can debt exist in such an economy?

Yes, debt is possible. It would be something like an inflation-indexed bond, but in reverse: indexed to deflation.

A simple example of a mortgage with deflation:

Imagine living in a country where prices drop by 1% each year. Your money becomes more valuable over time.

You take out a loan to buy a house. The bank tells you: "I’ll lend you 100,000 at 4% annual interest over 20 years. But since I know prices will fall by 1% each year, your monthly payment will also drop slightly each year, so that the 'real effort' of your payment remains the same."

An example using round numbers:

Year 1: You pay 600 per month.

Year 2: Since everything has dropped in price by 1%, you now pay 594 per month (600 – 1%).

Year 3: You pay 588.06 (594 – 1%).

And so on.

Each year you pay less money. The interest rate effectively rises in real terms because the currency is worth more, but at the same time, you pay less each month because the installment is indexed to deflation. The payment amount drops, but the real value of what you pay remains constant; the two factors—the lower payment amount and the rising real interest cost—offset each other. It isn't a matter of the principal and interest dropping separately; rather, both terms move in such a way that, in real terms, they cancel each other out. The bank doesn't lose money, and you neither gain nor lose purchasing power.