Suppose I want to borrow money. So I issue a financial asset I call "NRUnits". You can buy NRUnits from me at $1 each.
I consider two different policies to give people sufficient incentive to want to hold NRUnits:
- I promise to peg the exchange rate between NRUnits and the dollar, so they are always worth $1 each. And I pay 5% interest on holdings of NRUnits, and I pay that interest in the form of NRUnits, so someone who holds 100 NRUnits worth $100 will hold 105 NRUnits worth $105 one year later.
- I pay no interest, but promise to have a crawling peg exchange rate between NRUnits and the dollar that appreciates at 5% per year, so someone who holds 100 NRUnits initially worth $100 will hold 100 NRUnits worth $105 one year later.
Nobody (including me) cares which of those two different policies I choose.