What happens if the The Dollar is abandoned and new currency issued?
We all understand what happens to the purchasing power of a dollar in an inflationary economy. We understand what happens to the purchasing power of a dollar if it decline relative to other currencies. What I can't understand what happens if the dollar is abandoned and a new currency created. What happens to contracts (ie: annuity contracts issued in dollars) if a new currency is created to replace the current dollar?
Thanks for a reply
An interesting question and a rather extreme scenario I suppose.
As you indicate, the currency can suffer quite a bit of damage through either inflation or deflation.
I am not sure, however, how the contractual obligations would be affected in an insurance or annuity contract if the currency were replaced.
I suppose it depends on the wording in any given contract. I'm just not sure whether contracts would address this potential yet extreme scenario.
We will be interviewing a company that is involved in the Swiss annuity market this coming week. Annuity payments are made with the Swiss currency rather than the U.S. dollar.
We will present the question to them, so keep an eye out for the interview.
