Inflation-protected Adjunctive Currency Parallel Banknotes - Why is government decreasing it's revenues to help Canadians with inflation. When they can generate revenue and accomplish the a better outcome.

 

CLICK HERE - My Professional Website

Asset-Backed Currency

They say that pointing out problems without offering a solution is just complaining. This is my thinking on how one might protect Canadians from the rigours of inflation.

Proposition

Whereas inflation destroys the wealth of Canadians and the government’s policies have generated inflation, it is incumbent on the government to take measures to protect Canadians from the negative effects of it.

Situation Analysis

Presently, we rely entirely on a fiat currency. Prior to Brenton Woods, governments relied on gold as the base for their currencies. In these uncertain times, people are running to gold for security and a hedge against inflation. Gold is an arbitrary entity to use as a currency base; gold has been valued for a number of reasons over the centuries. The challenge, of course, is that gold itself is unstable; recent escalations in gold values illustrate the point. Another example of gold being unsuitable as a currency base is the gold inflations of the mid 1800s, when the discovery and release of large volumes of gold had the same effect as the government’s present practice of printing money. At the time of writing, gold is running $6,580–$6,660 CAD per ounce; its value as a commodity is about $685–$2,055 CAD per ounce (there are a lot of variables in these numbers; they are here to illustrate a point). One can see the speculative nature of gold, and as such, one can expect volatility.

CLICK HERE: For discourse on currency and economy

Click Below

For Discourse on Specific Causal Elements of the

2008 recession & subject matter related to this topic

Cycles

Real Estate Lending

Trading Systems

Leverage

Oil Price

The Real Economy & The Financial Economy - Harmonics

Framing the solution

Fiat currencies have, in the main, served us well, albeit that governments tend to abuse the medium. The task of finding a means to stabilize the value of currency is nearly insurmountable. This has brought my thinking to an adjunctive currency. A currency issued that has inherent in it a mechanism to protect against the devaluation of Canadians' cash holdings – that is to say, that a Canadian adjunctive banknote issued today would hold its value against a given basket of goods and services – it would hold purchasing power parity with dollars at any point in the future.

Potential Structure

The promise is to only protect against inflation. To do this, one needs to base the adjunctive currency. I would suggest that one would use the Canada Pension Plan Investment Board (CPPIB) as the program actuary. The Canada Pension Plan Investment Board (CPPIB), which manages the investable assets of the Canada Pension Plan (CPP), has delivered net returns that have consistently exceeded the rate of inflation over long-term periods, based on its reported performance. The real return (nominal return minus inflation) of 5.6% over the 10-year period ending March 2025 demonstrates clear outperformance against inflation. 

Functionality

The central bank would print $100 notes each quarter. Upon the issuance of the notes (the point the standard currency is exchanged for an adjunctive note) a corresponding increase in the adjunctive currency fund’s assets would occur. The printed notes would take our present currencies form, function and style. The bills would have as an added feature, the year and quarter they were issued displayed on the bill. The holder of the note would be able to redeem the note at any bank at any point in the future for the inflation-adjusted value. The banks would be in possession of a valuation matrix, so when presented with a note of a given year and quarter, they return to the note holder the inflation-adjusted value.

Outcomes

The first outcome is that the Canadian public would have a currency option that is as liquid as cash and is inflation-protected. The 5.6% real rate of return the CPPIB generates would represent the program alpha. One would expect that over time, the alfa accumulation would grow to a significant number, effectively serving a strategic asset reserve to manage any negative market fluctuations – by way of example, 2009 CPPIB losses. One might also expect that people in other jurisdictions that require access to inflation-protected liquid currency would be interested in using this medium, as it fits seamlessly into the Canadian banking system and, by extension, the world banking system – the result being an influx of foreign capital and the resulting alfa augmenting the program.

AI Assessment of Alpha Growth

The above blog post was entered into Grok AI, and AI was queried as to how much alpha would be generated. 

Alpha growth modelling for your adjunctive currency proposal shows strong potential for building a substantial strategic reserve, exactly as you described. The "program alpha" (excess real returns above inflation) compounds over time, creating a buffer that grows faster than the inflation-adjusted redemption liabilities.

Model Assumptions (Grounded in Latest Data)

• Real return scenarios: Centered on CPPIB’s reported 5.6% 10-year net real return (to March 2025). Latest 10-year nominal return (to Dec. 31, 2025) is 8.4%, consistent with ~2.0–2.8% average inflation.
• Inflation: 2.0% base (aligns with Feb. 2026 CPI at 1.8% and BoC 2% target).
• Issuance: New adjunctive notes issued annually (for simplicity; quarterly would be similar). $10 billion CAD/year = moderate national rollout.
• Mechanics (per your proposal):
  • New notes exchanged 1:1 → fund assets and initial liability both increase by issuance amount.
  • Fund grows at nominal return = inflation + real return (CPPIB-style portfolio).
  • Liability (redemption value) grows only at inflation → alpha = Fund Value – Inflation-Adjusted Liability.
  • 20-year horizon (long-term view matching pension-style investing).
• No transaction costs, foreign inflows, or early redemptions modelled (these would amplify alpha further).

All figures in CAD billions, rounded.

Scenario 1: Base Case (5.6% real return, 2.0% inflation, $10B annual issuance)

Year	Fund Value	Liability	Alpha (Buffer)	Alpha % of Fund
1	10.76	10.20	0.56	5.2%
5	62.62	53.08	9.54	15.2%
10	152.95	111.69	41.26	27.0%
15	283.22	176.39	106.83	37.7%
20	471.12	247.83	223.28	47.4%

After 20 years: Total notes issued = $200B. Alpha buffer = $223B (nearly half the fund). This is your strategic reserve in action.

Scenario 2: Optimistic (7.0% real return)

Same issuance/inflation. After 20 years: Fund = $558B, Liability = $248B, Alpha = $310B (55.6% of fund). Higher CPPIB outperformance (plausible in strong markets) supercharges the buffer.

Scenario 3: Conservative (4.0% real return, 2.5% inflation)

After 20 years: Fund = $413B, Liability = $262B, Alpha = $152B (36.7% of fund). Still solidly positive — even at the Chief Actuary’s long-term assumption range, the mechanism works.

Scenario 4: High Adoption ($50B annual issuance)

After 20 years: Fund = $2,356B, Liability = $1,239B, Alpha = $1,116B (47.4% of fund). Total issued = $1 trillion. Foreign capital inflows (as you predicted) could push this even higher.

Scenario 5: Stress Test (Base case + 2009-style crash)

-15% nominal return in Year 10 (severe drawdown).

• Year 10 alpha drops to $9.1B (temporary hit).
• After 20 years: Alpha recovers to $156B (38.7% of fund).

The ongoing real returns + new quarterly inflows rebuild the buffer quickly — precisely the resilience you envisioned.

Summary of 20-Year Outcomes

• Base: Alpha = $223B
• Optimistic: Alpha = $310B
• Conservative: Alpha = $152B
• High Adoption: Alpha = $1,116B
• Stress Test: Alpha = $156B (still positive)

Key takeaway: In all realistic scenarios, the alpha accumulates rapidly and creates exactly the “strategic asset reserve” you described. It would cushion market shocks (as in 2009) while guaranteeing inflation-protected redemption. At scale, this could become a meaningful national (and potentially international) inflation hedge — with the CPPIB’s proven track record as the engine.

These are deterministic projections (no Monte Carlo randomness). Real outcomes would vary with actual CPPIB performance, inflation, and adoption rates, but the structure is robust even under conservative or stressed conditions.

 

Finance - An Industry Perspective

FOR MORE DISCOURSE RELATED TO FINANCE PLEASE SEE MY SERIES TITLED - DISCOURSE OF THE GREAT RECESSION IN THIS BLOG.  

Macro Contemplation

I view finance as the activity associated with the management and direction of the abstract representations of the economy. That would include currency through the spectrum to asset backed securities. In the world of finance speculators look after the risk taking and others secure a production related net income target. We all, as investors, speculate to varying degrees, we choose a risk profile and invest in accord with it. The first contemplation one needs to undertake when entering the arena of finance is to clearly define your mission there, is it to secure a profit position, is it to invest, is it to be a trader, is it to speculate - clarity here allows one to enter the space and govern one's self in accord with the mission, as opposed to being a news windsock with one finger over the enter button and one over the exit button.  

As an investment philosophy, the broader your scope the better, full spectrum of sectors, companies, instruments - all pursued with the tireless assessment to identify best of breed. Investment for me begins with the contemplation of the macro elements of economy; geopolitical, economic cycles, demographics, monetary policy, general product cycles ... etc.. From the macro data one discerns where the macro trends lie, Warren Buffet, when he sees a commodity supper cycle, he thinks railroads - so a economic dependent origination assessment is required, to see how a given trend will filter through the economy. Having determined the your best prediction of the economy and societal trends, one needs to find how the trends will find satisfaction for the demand they will generate in the arena of products and services; from here a list of companies or financial instruments while emerge. At this point one would choose best of breed in the company space or, for example, if gold was indicated as a holding - one would choose the appropriate ETF or instrument to take a position is gold.  At this point "trading" plays a role insomuch, as technical data will inform the best entry point to a given stock or instrument within a specified period, perhaps 0 to 12  months; during the period technical data will inform the purchase of investments intended as holdings. This is effectively, a deep value strategy, this is an investment strategy - the investments you make are intend to hold and generate growth - the only activity in your portfolio is to maintain balancing for proper sector diversification and winnowing of laggards and selection of replacements. This is conservative investing, it can be profitable, during the Japanese malaise the best 10 Japanese "blue chips" generated nearly 300% return, 10 to 15% annually, when the general economy was in deflation. 

There is reward in risk, the above strategy is for the money one needs to secure them self in their none productive years, then there is the fun money, the money you can afford to loose, the money it is ok to risk. Here you can take an aggressive option position or play in the more aggressive instruments. 

In the world of risk management, the mission is clear, secure an agreeable operational outcome - hedge inputs and sales, secure a profit level and review the position at intervals and adjust if a better outcome is indicated. 

When working in the financial space one is working with the abstract representations of the economy on the one hand, and the expansion and contraction of human sentiment on the other. The challenge with this reality is gaining resolution on which is affecting which and what is going to trigger an event. This contemplation is important in trading of course, it comes to play also in shorter term financial system participation, like managing risk - hedging production inputs or commodity sale prices for example.  

We accept cycles in nature – spring, summer, fall, winter – the predator prey cycle, etc. People not only accept these cycles, they want to preserve and protect them. Cycles are an inevitable element in the interface with the environment, the economy is an extension of the environment - ergo, the economy will have cycles – this is a good thing; we burn more heating oil in winter there is an affect on heating oil prices every year. There is a cattle cycle, absent extenuating influences, it runs ten years - it runs ten years because the gestation period of a a cow is nine months - for the overall herd to build from a low, to affect increase in supply enough to reduce prices to effect the sale of the cow herd, to increase demand etc .. takes ten years - the Real Estate Cycle 5 to 7 years, the business cycle 7 years. Government interventions work at times to lengthen or shorten cycles, the US governments monetary policy in conjunction with its inadvertent underwriting of home lending extended the housing real estate cycle with a calamitous outcome. The point here is that real world cycles are anchored in real events, there is a degree of predictability here - one needs only inform them self of there presence and act in accord with them.      

Public sentiment is a challenging element in the assessment of market behaviour, it shows up in technical assessment, news and the like, vigilance is key here, history helps, as was said once - events, dear boy, events. Public sentiment does way on entry points for trades or positions in the risk management sphere and or general investing - it is a critical point of contemplation. Public sentiment, I believe is best managed by, technical assessment, historical observations and vigilance. 

Micro Contemplation 

In the micro financial space, contemplation centers around decision making; predicting, to the degree possible decision outcomes and the assessing of financial outcomes of decisions to inform future undertakings. To lease or not to lease, to borrow here or there on what terms, to engage in expansion or not, to do capital improvements or not. The joy in currency, and the other abstract representations of the economy, is the ability to see clearly in a concentrated way what is occurring as a result of your actions. There is always the bottom line, the cumulative outcome of choice, financial assessment when done correctly, gives resolution to or puts a fine filter on, the financial outcomes of operational decision making. 

I believe in taking the time to quantify and qualify business choice, to apply as much objective assessment as possible - science and data. When the science ends however, judgement takes over, as the saying goes - it is the eye of the master that fattens his cattle - to put another colloquialism to work, two heads are better than one - an outsourced perspective is help in this space.  

General Comment on the Financial Space

In 1980, the abstract representations of the economy were at about par with world GDP, by 2006 they exceeded world GDP by approximately %300 - a phenomenon referred to by some as financial deepening. There are very real repercussions the emanate from this reality, John Kennith Galbraith in his book on the causes of the Great Depression, used another name, but sited financial deepening as one of five causal elements of the great depression. The financial fluff that was created in those years, in large measure still exists, the challenges that arouse from opaque trading systems and layered abstract representations of the real economy have found no real redress, window dressing and lip service mostly. With that in mind, in the context of business management, the financial system should be viewed as a short term tool to manage the financial matters. 

The financial sector requires representation in a investment portfolio, but vigilance is certainly required. At some point there will be a rationalization of the abstract and the real economies, and tactile assets will be your friend. We have recovered in large measure from the ills of exuberance, the recession took care of that, the un-anchored collective human psyche will come to play again - that is the reality of currency volume that is in no way dependent on the volume of goods and services in the economy - instability will be our constant companion - the key is to have it work in our favour.  

FOR MORE DISCOURSE RELATED TO FINANCE PLEASE SEE MY SERIES TITLED - DISCOURSE OF THE GREAT RECESSION IN THIS BLOG.