Author: Siize Punabantu

1st October 2020

How SV-Tech Addresses Hyperinflation Paranoia

Usually printing or creating money and introducing it into an economy is shunned, ostracized and viewed with tremendous suspicion due to the fact that it is known to cause unwanted and unmanageable inflation, as has been witnessed in some countries recently such as Zimbabwe where the currency had bills denominated in trillions. Hyperinflation paranoia can be described as a sometimes irrational phobia that believes any form of increase in money supply and printing money will cause hyperinflation.

The fact that printing money is cheap, and for all intents and purposes the fact that introducing it arbitrarily into an economy makes it worthless because it will just cause inflation or hyperinflation, are in fact very important and useful characteristics of money that make it highly effective for accelerating economic growth.

You have to put your counterintuitive cap on to understand how what the public generally considers the worst traits of money, that is, being cheap, having no intrinsic value and being worthless because it causes the chaos of hyperinflation should it be over supplied actually make money a very useful resource. To do this you have to stop thinking of money as a store of value and think of it more as a natural resource or as just a raw material. When you elevate your view to seeing money as raw material, being unwanted because it is inflationary and cheap because it has no intrinsic value means it is a raw material that can be acquired at very low cost. If money were expensive this would be counter-productive to its utility value as a catalyst and means of accelerating economic growth.

The circle below represents money supply in Country X’s economy.

There are a number of ways a central bank can increase money supply. If a government is cash strapped and desperately in need of money, for instance, to pay salaries, buy fuel, pay off local and foreign debts, keep its operations going, the central bank may simply print money and use this to pay for government expenses. This is the worst use of money and will rapidly lead to inflation and hyperinflation which cause chaos in a national economy.

The other option is for the central bank to increase money supply by reducing the cost of borrowing by lowering the monetary policy rate. This will make credit cheaper and will place more money in the public’s hands.  There will be more money in the economy potentially chasing fewer goods and services. Like printing money to pay bills or cover operations, this can cause a rise in inflation.

The other option at the disposal of a central bank is to use government instruments such as bonds and treasury bills to borrow from the public. Government instruments will tend to have high interest rates to make them attractive and will be purchased predominantly by institutional investors, such as commercial banks. Firstly, when the central bank raises these funds and begins to use them to pay bills and pay for government operations the impact of this will be more money chasing fewer goods and services and the rate of inflation will rise.

Secondly, when government instruments mature the central bank will have to honour its debt to subscribers of government instruments. Since the interest rates on these instruments were high, when the central bank honours its creditors money supply floods back into the economy, once again creating a condition in which more money is chasing potentially fewer goods and services. The consequence is more inflation.

Inflation takes money out of the pockets of every citizen in an economy, reducing their wealth, and the value of their earnings, they have to work harder for less. It makes life harder for citizens and is essentially a sinister betrayal of their trust. However, it is a soft option because most people are ignorant of how the value of their labour and purchasing power is being eroded because earnings stay the same while prices persistently rise.

The diagram below shows money supply increasing while goods and services in the economy remain constant. At this point the central bank is rapidly losing its control over the economy and financial system stability as the domestic currency depreciates with its operations. As a consequence, it must now look to the treasury for foreign exchange to act as a shield for a collapsing national currency.

The disadvantage of this approach is that it will put a strain on the treasury’s import cover.

If the central bank and monetary policy committee continue to apply these approaches, they can inevitably move the economy from creeping inflation, to full blown inflation and eventually into full blown hyperinflation that plunges a country into chaos should foreign exchange reserves and earnings fail to hold fort. As shown in the diagram below persistent increases in money supply can lead to hyperinflation, where too much money in the economy is chasing too few goods.

At this point the only device protecting the economy from hyperinflation is foreign exchange in the treasury and forex earnings from exports.

How Split Velocity (SV-Tech) accelerates economic growth without any inflation

To begin with Split Velocity (SV-Tech) applies its unique method to managing money supply. What SV-Tech does, is that it first increases the work money has to do in the economy. Inflation is a symptom of money being “lazy” or functioning inefficiently in an economy.

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SV-Tech changes some accounting procedures and instead of one task at a time (linear transactions) SV-Tech requires money to perform more than one task per transaction, it thus splits the velocity of money. SV-Tech upgrades the cost equation from Profit = Total Revenue (TR) – Total Cost (TC) to Earnings = Total Revenue (TR) = Total Cost (TC), which forces money supply to work much harder. This causes money supply to shrink, contract or fall as shown by the smaller circle below.

Money is now working harder to produce goods and services in the economy. Government has more money for its operations and for paying debts, firms have more income and are able to start to increase their output, exporters are generating more forex from increased sales/exports, firms are able to pay back their loans with commercial banks etc and take on bigger loans due to improvements in their creditworthiness. Note that at this point of implementing SV-Tech the central bank has not printed any money, it has not made any changes in the monetary policy rate, it has not issued government instruments. It has not done any of the activities that potentially trigger inflation in an economy at this stage, which are still available to it at a later stage when the economy is more stable. In fact, all it has done is increase the operating efficiency of money in the economy by requiring chartered accountants in firms to upgrade the cost equation in their public and private sector operations.

Government has funds to pay its debts, its has money to run its operations, money supply has shrunk not increased, firms have resources to pick up the pace of productivity, exports are increasing significantly as exporters in every industry operate in a more effective financial system, the output of goods and services increases to the extent that it is greater than money supply, the economy is functioning more efficiently and this causes the domestic currency to appreciate in value against the dollar and other hard currencies. The economy is beginning to boom.

Note that even with these dramatic changes in the economy the central bank still has not applied any of its policy tools. It has not printed money, and it has done nothing to increase money supply.

However, as shown in the diagram above goods and services in the economy are beginning to put pressure on money supply, in other words there are too many goods and services beginning to chase too little money in the economy, the local currency is appreciating to undesirable levels. Only at this time does the central bank ease this pressure by relaxing money supply using all the tools available to it including government instruments and reducing the cost of borrowing. The SV-Tech system allows money supply to settle at a predetermined growth rate, that is, 10% to 48% growth in GDP per annum. This new extraordinary growth is made possible by the SV-Tech upgrade to the cost equation firms introduce through accounting procedures that allow no unnecessary losses to the circular flow of income (CFI).

The central bank is now in full control of the economy, the value and exchange rate of its domestic currency. The economy is performing extraordinarily.

Using the SV-Tech system at no point in time during the implementation scenario described above, was there a threat of inflation or hyperinflation. These threats only remain with current “state of the art” methods being applied to manage the national economy described at the beginning.

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24th September 2020

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27th August 2020

We tried to forewarn and inform about the weaknesses of current strategies.

On Tuesday 25th June 2019 [a year ago] under the heading “Ending poverty by default: A challenge for this age” [scroll further down to read this] we alerted the central bank to the inadequacy of applying conventional monetary policy strategies initiated by the monetary policy committee at the time. An economy facing stagflation that is at the limits of its borrowing capacity (Zambia is at 70%) is generally out of options. Its only recourse is to find a benefactor to borrow from. It was hoped and it is still hoped one would be found for Zambia and being patriotic, like everyone else, we still hope this works out.

However, textbook approaches to economic management do not work for developing countries due to the fact that they are generally created for Western models where economies are wealthier and have access to hard currencies. For developed countries to doggedly follow the same style of management as developed countries when developing countries do not have hard currencies and are resource constrained rather than resource endowed does not make sense, in fact it defies logic. It is also important for African nations to be wary of the fact that even state of the art theories and understanding of economics in the world today applied by developed nations has not advanced to where they have identified the unconscionable and pointless waste or loss of income caused by a poorly designed circular flow of income.

Developed countries, at least by contemporary standards, are wealthy. This is evident in their much higher GDP and per capita incomes. Therefore, their primary concern for decades has been how to contain this wealth and not lose it. This has subconsciously influenced the knowledge paradigm that is economic theory today. Since the objective is to contain wealth, the focus is not wealth creation. Even mediocre annual growth rates are sufficient to maintain the status quo of existing wealth. Mediocre growth rates of 4% or 5% are sensible in the context of the huge sums in GDP they are applied to. It explains why they have never identified losses due to inefficiency of the CFI. They have never had a need to identify methods for rapid or accelerated growth. Developing countries are poor. In comparison they have much lower GDP and per capita incomes. Nevertheless, they implement the very same knowledge paradigm for economic theory and confidently pursue the same 4%-5% growth rates applied to insignificant GDP and therefore unsatisfactory economic gains that perpetuate their own underdevelopment whilst leaving them wondering why poverty does not seem to end. Since they don’t have any wealth to contain, what they are in effect containing and sustaining, in state of the art practice, is their own poverty perpetuated by a knowledge paradigm that believes slow or mediocre annual growth is accurate, worth aspiring to and they mistake this position for conventional wisdom to live by.

Resource constrained countries struggling with underdevelopment, poverty and debt simply cannot sit back and allow these lapses in theory and the valuable resources that could be put to good use laid waste, further ravage their economies. If this is the path that remains and continues then more inflation, underdevelopment, an unmanageable economy, difficulty and suffering may be the inevitable result. Nevertheless, there is always hope and ways to navigate the economy toward prosperity can be strategized.

Applying a Split Velocity system for managing a national economy is ideal for developing countries like Zambia because it assumes the nation has no resources, must rely on its own ingenuity and act within its own capacities. SV-Tech assumes any country applying the methodology is resource constrained and therefore must find alternative ways of generating its own internal financial resources to enhance productivity whilst maintaining price and financial system stability.

A Split Velocity model unlocks the equivalent of GDP at constant price. This revised strategy would unlock the equivalent of up to US$26 billion for the Zambian economy (that is, the equivalent of GDP per annum) as well as new monetary policy tools with which to wrestle the Zambian Kwacha from US$1 – K18 back down to US$1 – K1 if this kind of parity was desired by the central bank. It would do this with results gained in record time.

Unlike other strategies, though unconventional, a Split Velocity model is safe, guarantees its outcomes and is grounded in sound financial practice and productivity. Most importantly it is self-reliant, countries do not have to look for a benefactor to help bail them out of crisis, they can use their own tenacity and initiative to raise the resources they need sustainably to transform the lives of citizens.

It is important to note that even with current development strategies the forecast per capita income for Zambia in 2030 is US$1,639.00 – US$2,185 (MoF). This is an alarmingly low increase of US$300 – US$878 after 10 years of economic activity – (a gain of US$87 per year -Zambia may not meet the 7NDP goals and may be worse off in 2030 than it is today, except with a much bigger population notwithstanding unanticipated shocks for which there is currently little or no capacity for mitigation). There is a need to address what realistic difference a per capita income gain of only US$87 a year for 10 years will make in people’s lives, especially if there are unexpected shocks as a risk factor along the way, before this time is lost and can never be regained. On the other hand Split Velocity offers per capita income advances over the same period of up to US$26,714.15 per capita with guarantees, no unnecessary losses to inflation that make results redundant and provisos inherent within the system to deflect shocks to the economy that may interfere with objectives.

Let it be noted that this change in per capita income only deploys 42%-48% of the resources . made available by the Split Velocity System. In other words it does not stretch either the resources or imagination of this technology and its capacity to transform the Zambian economy. The only barrier is the mindset of technocrats. In fact the straight forward capacity of developing economies to achieve these results is demonstrative of how far behind the learning curve developing countries and managers have fallen by trying to implement approaches more suitable for wealthier economies than their own.

This means that a Split Velocity system continues to offer hope as a means that can be deployed for transforming the economy especially in the wake of unexpected shocks. It leaves no ambiguity as to where the resources are with which to achieve these gains. This is achieved without even maximizing or exhausting the resources generated by the Split Velocity system. It is not peddling fairy tales or fantasies, and is not based on guesstimations but provides hard facts and mechanisms for achieving results that will not disappoint implementors in both developed and developing countries.

See the tables below to see how much developing countries in Africa are losing daily and annually to an inefficient and faulty economic operating system in the circular flow of income (CFI). The recovery of these resources could be used to transform lives.

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23rd June 2020

A Split Velocity system manages price stability and is capable of wiping out chronic inflation for governments that struggle with either a depreciating or appreciating currency. The table below highlights the benefits SV-Tech can bring to the Special Drawing Rights (SDR) system.

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8th June 2020

V-Tech makes gold and other precious metals like copper more valuable.

The options for maintaining price stability being observed here are innovation and technology (e.g. SV-Tech) as opposed to precious metal (e.g. gold). Which is the most useful?

If you have performed the Instruction Set for a Legally Admissible Empirical Test for Split Velocity then you have successfully evaluated Split Velocity by way of empirical test.

Let us now compare SV-Tech (Split Velocity) to Purchasing Gold as a means of maintaining price stability.

The Instruction Set for the Empirical Test revealed a money supply deficit equivalent to GDP [-(B+C)] caused by subtraction. It was further noted that this represented a correction of money supply and not an increase in money supply. Therefore, this enables a correction equivalent in domestic currency value to GDP at constant price.

This means that the empirical test shows that the Split Velocity system is able to support, hold or maintain the Zambian exchange rate, for example US$1 to K5 or US$1 to K1 by the equivalent of GDP per annum or US$25.8 billion in 2018. In essence SV-Tech allows a domestic currency to behave like and gain many of the attributes of a hard currency, a system that has never been possible prior to SV-Tech or achieved before in central banking history. In fact, even in terms of the scalar increase of money supply, an IMF reserve currency cannot be used to increase money supply in this way at constant price (without inflation). Furthermore, the supply of gold cannot be increased on a scalar level, at constant price (because the price of gold would fall as a result of over supply). In this regard a Split Velocity system outperforms both gold and hard currency, a feat currently regarded as impossible or improbable. Consequently, where credibility and currency stability are concerned it even outperforms the Special Drawing Rights (SDR) reserve currency system presently in use by the International Monetary Fund (IMF), which is much weaker than a Split Velocity system.

SV-Tech is at the very cutting edge of the Fintech space. The SDR system was introduced in 1969, a period when emoney, internet banking, debit and credit cards, cryptocurrencies and tech based financial innovations did not exist, therefore it should come as no surprise that innovations in the Fintech space will inevitably evolve that can achieve the same objectives as the SDR and that encourage a more inclusive approach to how currencies are managed and appraised. At the technical level, the fact that it can be demonstrated that where price stability, economic strength and reliability are concerned, a currency managed using a Split Velocity model outperforms a currency in the SDR system should be good news in that it complies with the merits for which the SDR system was created and exists in the first place. This development will allow for less discrimination when it comes to how domestic currencies are viewed.

For any central bank in the world, to be able to back its domestic currency with the same strength as a Split Velocity system it would have to be able to purchase and hold gold per annum equivalent to its annual national GDP. (To add some perspective to this, not even the United States Federal Reserve Bank has the capacity to back the US dollar at this level, to do this, it would have to upgrade to a Split Velocity System).

This means that for the central bank to be able to back the Zambian kwacha and exchange rate with the same capacity as Split Velocity, it would have to purchase and hold US$25.8 billion worth of gold and maintain the equivalent in GDP in gold as a reserve. ZCCM-IH and mines in general in Zambia are unable to produce this much gold, and even if they could produce and supply it, government could simply not afford to buy it all.

In addition to this, depending on market conditions, the price of gold rises and falls forcing a central bank to ride unpredictable trends, whereas a Split Velocity system maintains price stability even while economic conditions rise and fall. A Split Velocity model, when used to manage a national economy, is not subject to economic indicators, rather, economic indicators are subservient to a Split Velocity model. For instance, it does not wait to see what economic growth will be experienced, it sets and guarantees the growth rate.

Frankly, when it comes to price and financial system stability, gold and other precious metals need Split Velocity to maintain and sustain their value by sustaining higher levels of economic growth and maintaining a stable national economy. When it comes to financial system stability, this is one condition in which innovation is the more advantageous option.

Its important to understand that natural resources and mineral wealth are not a panacea for economic growth and national prosperity, the thought and strategy must delve much deeper and move far beyond this obstacle by appreciating that any price stability or grandiose economic benefit that any precious mineral like gold or other natural resource could deliver for the country would have already been delivered by copper, by now. There is a need to push beyond these limitations with the understanding that some countries with no natural resources have industrialized and formulate a strategy that scrutinizes the operational structure of the systems in place by which development objectives are achieved.

To discover minerals such as gold and other precious minerals is always beneficial to a country and its people and should receive as much attention and support as possible. An innovation like split Velocity ensures that gains from discovering and exploiting mineral resources are protected by a stable financial system where the demand for mineral resources being supplied by mining companies is kept robust by healthy levels of guaranteed annual growth. We live in a technical age in which innovations like SV-Tech represent safe hands when it comes to the direction to take towards creating a better life and a better world for the youth, without leaving anyone behind.

Mining and precious minerals are cardinal to development, have their uses and should be invested in, nevertheless, for a central bank, anywhere in the world, purchasing gold as a way of trying to maintain financial system stability, is in no uncertain terms, simply no comparison whatsoever to deploying a Split Velocity system.

The raw power, dynamic capacity for growth and agility of finance in a Split Velocity system means that any country managed on this system can enjoy the benefits of a domestic currency that performs at the same level of stability and reliability as that of a hard currency backed by a fully industrialized economy and with less of the kind of volatility seen in the currencies of developing economies.

The mechanisms it innovates to be able to do this are fairly easy to demonstrate.

When reference is made to a need to advance the knowledge paradigm in economics, finance, accounting and business it should be emphasized that retraining is required to understand the counter-intuitive processes of a Split Velocity system. For instance, if a student graduated today they would still be trained to believe the CFI is efficient and lossless. However, the empirical test for Split Velocity clearly shows that the CFI is dysfunctional and inefficient in a manner anyone, even laypersons, can see and understand, and it is creating monetary and fiscal instability, makes global poverty inherently unmanageable as well as costing governments billions of dollars.

Similarly, the generic tutelage in finance is that an increase in money supply will cause inflation, or the over supply of any product such as gold will cause a drop in price. If a student graduated from university today this is what they would believe. However, we can provide an empirical test to teach and demonstrate, even to laypersons, that a Split Velocity model allows increases in money supply to take place at constant price. Instead of inflation the economy experiences the inverse, that is, economic growth. No currency in the world today, not even that of industrialized nations or even a precious metal can maintain price stability in this way. This is very important for developing countries because it means in a Split Velocity system the domestic currency can technically perform more efficiently than any present day reserve currency belonging to an industrialized nation.

These are just the facts. Developing countries should not believe they are trapped by poverty and circumstance. Prosperity belongs to all nations and all people, not just a select few. The knowledge paradigm is key.

Most importantly, by acting diligently and expediently, this means that it is possible today to guarantee the youth a future without uncertainty, with opportunity and economic independence, not as a lofty or empty promise, but with a working strategy that will deliver within this generation.

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