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So here's an invention that I've been extolling now for 25 years.
So far, I will note, well, I shouldn't say no success.
I've gotten attention for it.
But I think it won't happen in my lifetime, but
we'll do the Unidad de Fomento eventually.
It's coming.
So let me tell you the invention.
In 1967, Chile was going through a hyperinflation.
I mean, prices were just going up.
I don't know what it was, 1,000% a year or something like that.
And people were distressed about it.
When you got your paycheck, you know what you did?
You got your paycheck.
Of course, you cash it immediately and
you run to the store and you spend the whole thing.
Because by the end of the month, [LAUGH] it won't be worth anything.
[LAUGH] So this is crazy.
And so now the idea that Chile invented
then was to create a new unit of account.
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Now money has several functions.
It's a store value and a unit of account and a means of transactions.
You can separate out those functions.
You can have a separate unit of account that is not money.
So they invented something called the UF, a Unidad de Fomento,
and they allowed its value to be tied to the Consumer Price Index.
Back then, they would publish in Chilean newspapers every day the exchange
rate between the, Escudo,
which was the currency they had then, and the UF.
So I looked it up today.
Now it's a website, used to be in the newspaper.
Well, maybe it's still in the newspapers.
But there's a website, valoruf.cl.
I looked it up this morning and
1 uf is 25,655.55 pesos.
Now you might wonder, why did they pick such a big number?
They didn't, they picked some small, maybe it was one to one, I don't know exactly,
in 1967.
But they've had so much inflation in their peso,
that it's up to 25,000 pesos per 1 UF.
And that is worth, at the current exchange rate,
between peso and dollar, $35.92.
So there's been a huge increase,
even though Chile has gotten its inflation more under control,
the price level has still increased 50-fold,
over 50-fold, since 1977.
But the US is not the haven of price stability either.
Would you believe it, prices in the US have gone up 24-fold since 1913?
That's not exactly a zero inflation environment.
And if you're saving for your retirement, for example, your grandmother buys you
a savings bond that matures in 2050, you should be worried, right?
What is that going to be worth?
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had to replace it with 1 escudo to 1,000 pesos.
But then the peso then eroded away, and they had to define a new peso,
which was 1,000 old pesos.
So we have something like a 50 million fold increase in prices in Chile.
So why would anybody still quote prices in pesos?
I don't know.
There's something about human psychology.
But at least let's give credit.
The Chileans are the most advanced country in the world in terms of
dealing with inflation.
When I was in Chile, I was giving a talk at the Central Bank, and
I said, whose idea was this?
This is amazing.
The whole world should be following to it.
And then, you know what?
Nobody knew whose idea it was, nobody.
They think it's a national embarrassment because it reveals how much inflation
they've had.
I said, no, you are the world's leader, and the world ought to copy you.
Eventually, they will.
Robert ShillerSterling Professor of Economics at Yale University
