Thanks....Is this setup still actively used? I'd think that the Loan payments are then made in the unit of account aspect would make it fairly obvious to consumers that their payments could increase suddenly.
Yes, I live in a country were we have such a system but as far as I know there are some others with similar systems.
Loan payments increase every month, also some other services like insurances are charged this way. But of course your salary is paid in the local currency and doesn't get adjusted at all. The problem is that it is all we have access to, every loan in the country works this way. So there is not much the consumer can do, people want houses, people need to pay for college, people need a car.
In most countries inflation works in your favor, here it works in the banks favor.
Wow that doesn't seem very fair unless the banks themselves are exposed to major risks, mind saying which country?
On the other hand, sounds like a possible major opportunity if you provide a solution that is better for the people.
Whenever you take out a loan, at the moment of signing the contract the value is converted from the local currency to the unit of account. Loan payments are then made in the unit of account, every month this fixed value is converted back to the local currency according to the current exchange rate. This way loan payments get inflation adjusted.
The idea is that banks and foreign investors have no inflation risk, companies and consumers take all risk.