# Inflation-Free Currency

```You may recall my recent question regarding local
currencies.  Some sources of info claim that
currencies can be made to be resistant/immune to
inflation.  I've been unable to locate any
more-or-less rigorous arguments to this effect.```
```
Questions:  Does this sound reasonable?  Does it sound
desirable?

I don't see how it would be reasonable since the value
of a commodity, even a numeraire commodity, is not
established by fiat.  Or is it?  The issuer of a local
currency may declare the value of the currency to be X
in terms of dollars, but then to be
inflation-resistant, that value would have to be
constantly changed to represent a consistent level of
purchasing power.  Right?  Last year it was worth \$1,
now it's worth \$1.03, for example, in terms of nominal
dollars.

How else could it be done, if at all?

If it weren't done, then the value of the local
currency would erode over time, right?  If we use an
Hours model, then the currency is worth 1 hour of
(anybody's) labor _or_ \$10 in terms of real dollars.
Next year, it is worth one hour or \$9.70, let's say,
in real dollars.  So if the value in dollars is
declared by fiat, then it needs to be changed

If the value is determined by fiat, to maintain that
value in the market, we must depend on the goodwill
and cooperation of the participants.  Is this true?
If our Hour is to be worth an hour of labor or \$10 of
goods, it depends on the participants to act according
to this rule rather than on the results of the
tatonnement of the economy.  A Pound Sterling is worth
so many dollars because there is an active market
exchanging it, and it's price is based on the ebb and
flow of goods and people using the two currencies.
But there is no market for our Hours; since there is
no demarcation dividing goods valued in dollars from
goods demoninated in Hours--is that reasonable?

You can see that I'm a little confused on this.  A
local currency issuer could set up a stock-market type
auction to determine the price of the local currency
in terms of dollars, correct?