Fynsa
Don Otto, talking to his friend Fritz, tells him some terrible news. One day, he came home a little early from work and caught his wife cheating on him with the neighbor on the sofa in his own house. Fritz, in a rage, tells him that he has to make a radical decision, to which Don Otto replies that it has already happened: "she will never again be unfaithful to me on the sofa in the house, because I sold it".
This innocent story is often used as an example of proposals that seek to solve problems in, shall we say, "curious" ways. In reality, if we realize it, the problem is not solved, we only put an end to some form in which it manifests itself. It is like wanting to end a fever and proposing to ban thermometers.
In this sense, we have seen how, during the last few days, a bill has been presented (actually it was presented some time ago, now it has passed an initial stage in Congress) that seeks to prohibit the use of the Unidad de Fomento (UF) as a currency to charge for various services, such as tuition fees, rents, dividends, etc. The motivation of the deputies who are the authors of the bill, who I have no doubt have good intentions, is to prevent Chilean families from seeing their purchasing power diminish day by day due to the continuous readjustments that the UF has evidenced during the last time. But as the saying goes, the road to hell is full of good intentions.
Perhaps the main drawback is that the UF is only an indexation unit. In simple terms, its value is readjusted depending on the monthly variation of the Consumer Price Index (CPI) of the previous month. It would be naïve not to mention that this generates a certain inflationary inertia, which may be higher or lower depending on the dynamism of the activity, but it is not attributable to the mere existence of the UF. In fact, if the UF is banned, nothing prevents the contracts from considering an indexation based on the variation of the CPI of the previous month (i.e., just a restatement) or being readjusted a priori according to some estimate of future inflation plus a risk premium. However, it is very likely that some of the inertia is part of an inflationary tradition in our country, which over the last 30 years has diminished significantly. The cause? The institutionality, reputation and credibility of our Central Bank.
Therefore, how can we ensure that families are not affected by the loss of purchasing power? I can think of two simple things: (i) Continue strengthening monetary institutions and (ii) stop presenting projects that increase the risk of future inflation. The best way to get better from an illness that manifests a fever is not to eliminate the thermometer, but to attack the causes that provoke the fever. In the same way, the best way for purchasing power not to decrease is not by eliminating the UF, but by keeping inflation low and controlled. Anything else is to want to sell the sofa.
