Part III The Principle of Nominalism, 11 Excluding the Effects of Nominalism

Subject(s):

Indexation — Nominalism — Monetary obligations

This chapter highlights the types of contractual provisions which have at various times been developed to counteract the principle of nominalism. The purpose of any protective clause is invariably to protect the creditor against a reduction in the value of the currency to which the clause is attached. In domestic contracts, protection is usually required against the consequences of (internal) inflation; in international contracts, the creditor is generally seeking protection against adverse exchange rate movements. Where the protected currency is formally depreciated or is allowed to ‘float’ downwards, the protective clause is likely to come into operation. Where another currency is revalued or appreciates, the protected currency remains stable in terms of all other currencies, save the one in relation to which its value is necessarily reduced or depreciated. Whether a protective clause applies in such a case will naturally be a question of construction. The chapter then looks at gold value clauses, unit of account clauses, index clauses, and escalation clauses.