Summary
Recognize that our liability, U, is fixed and that the exchange rate, R’, floats.
The city would update a “city exchange rate” automatically every month (without approval of the RA) set to GOM or LL Exchange plus 10%. This will lock in a fixed positive error rate (Equation (5)).
The city will do accounting in both US$ and L$ to satisfy those who want constant numbers, U, and those who want floating numbers, L’.
Details
In our current accounting system the price of land-use fees in US$, U, is transformed to L$, L, using a fixed exchange rate, R.
L = R U ……..(1)
When we collect payments, the land-use fees in L$, L, are then transformed to different US$, U’, via a different, changing exchange rate, R’.
U’ = L / R’ ……..(2)
In this case every value is fixed except the variables with a prime, namely the outgoing exchange rate, R’, and the resulting US$, U’. Because our fees are in US$, the error in collected fees is:
e = 100% * (U’ – U) / U = 100% * R/R’ – 1 ……..(3)
The fixed Nburg rate, R, was set to be 250 L$/US$ plus 10% or 275 L$/US$. The current rate, R’, is 300 L$/US$. Thus our shortfall in moving from U to U’ is:
e = 100% * 275/300 – 1 = -8.3% (variable)……..(4)
The proposed solution is to recognize that the only constant is the liability set by LL in US$, given by U. To do this we simply have to set the exchange rate in Equation (1), R, equal to the GOM rate plus 10%.
R = 1.1 R’
With this our error will be a constant
e = 100% * R/R’ – 1 = 100% 1.1/1 – 1 = 10%
(constant)……..(5)<
This amount would automatically floats without RA approval each month because the city recognizes that our liabilities in U are unchanging.
passed 2 October 2005