the past few months I've heard about many people who consider the limited money supply of Bitcoin as a flaw. I am no economist, and won't get involved in a discussion for or against deflation, but there is one claim I am sympathetic with: if people were paid in bitcoins, their pay rate might need to decrease gradually, and people definitely don't like to see decreasing numbers (purely a psychological thing). Hence my solution: IndexCoin.
IndexCoin is a currency backed by bitcoin, but with an exchange rate that varies in time. Actually, IndexCoin is nothing more than a different representation of bitcoin values. The exchange rate is determined by an index, which is defined by a central authority. Note however that many such authorities may exist, and people are free to choose one.
The authority publishes (using the necessary cryptographic arrangements, such as digitally signing) regularly an updated file which contains indexing points, Each point is defined as a block number together with an index value, plus a special index for any point in time before the first indexing (typically 1).
The IndexCoin client displays the amount for each transaction calculated for the time/block position in which the transaction took place, plus pseudo-transactions that represent the indexation, eg. "0.1% Interest on balance 1234.45 IDXC: +1.23445", if the index increased with 0.1% at a point in time where the wallet's balance was 1234.45 IDXC.
When doing a transaction, people can freely choose which index authority they want to use (or the address format could be modified to include information about the holder's native index). The client will then lookup the index value of the receiver, and send the corresponding number of BTC, implicitly doing a feeless "currency convertion".
Though I am not sure an index linked to such a volatile exchange rate would be a good idea, but exchange sites could be their own index authority, allowing eg. an indexcoin client that denominates values in "MTGUSD".
A payment contract could stipulate a trusted index authority to use for payments then.