Unidad de Fomento

Unidad (es) de Fomento
Country:	Chile
Subdivision:	no
ISO 4217 code :	CLF
Abbreviation:	UF
Exchange rate : (29 Mar 2020)	100 EUR = 3.186 CLF 1 CLF = 31.39 EUR 100 CHF = 2.962 CLF 1 CLF = 33.77 CHF

The Unidad de Fomento (plural Unidades de Fomento , abbreviation UF ) is an accounting currency used in Chile whose exchange rate to the peso is permanently adjusted to the inflation index IPC (Índice del Precio al Consumidor - consumer price index). As a result, the value ( purchasing power ) of a Unidad de Fomento remains constant over time, while it usually appreciates in nominal terms against the peso (but can be depreciated due to the season or the recession).

The UF was created by Decreto N ° 40 on January 20, 1967 to enable inflation-adjusted interest rates for development loans taken out on the international financial markets. At that time, Chile suffered from very high inflation rates. Thanks to the UF, international investors did not have to get involved in the inflation risk of the local currency, which is often viewed as incalculable, which should facilitate foreign investments in Chile. This hope is also expressed in the name, Unidad de Fomento roughly translates as funding unit .

The range of uses was later expanded so that today the Unidad de Fomento is used in many long-term contracts of all kinds in Chile, such as bank loans, private investments, mortgage loans and in some cases even payments. The UF also had a role in the legal field, where it serves as the nominal value of company shares and shares, as a denomination of contractual penalties and similar purposes. Over time, it has become the preferred measure of construction costs, property values, and secured loans in the private and public sectors.

Since the Unidad de Fomento does not exist as a means of payment in the form of minted cash , obligations in UF are settled in Chilean pesos . The conversion takes place according to the current exchange rate announced by the central bank (Banco Central de Chile).

A similar unit of account is the Unidad Tributaria Mensual (Spanish for monthly tax unit , abbreviated UTM), introduced on December 31, 1974 (DL 830, artículo 8 ), which is used for calculating taxes, fines and customs duties. In contrast to the UF, however, it is not used as a financial instrument. It is calculated by the Servicio de Impuestos Internos , (SII, Chilean tax office) and does not have the rank of a currency.

Calculation of the Unidad de Fomento

When it was introduced in 1967, the Unidad de Fomento had a value of 100 Chilean escudos (E °), the currency in circulation in Chile at that time, and was then adjusted quarterly according to the development of the current consumer price index in the previous quarter. In May 1975, Decreto Supremo N ° 280 determined that the UF would be adjusted monthly in future. With the currency change from escudos to pesos on September 29th of that year ( Decreto Ley N ° 1123 , published on August 4, 1975) the value of a UF was also given in pesos. A daily calculation was introduced from August 1977 by Decreto Supremo N ° 613 of July 14th of that year. Since 1990, the Chilean central bank has determined the value of the Unidad de Fomento on the basis of the CPI determined by the Instituto Nacional de Estadísticas de Chile (INE, Chilean national statistical office) .

The calculation is still daily. It is calculated at the beginning of each month for the period between the 10th of the current month and the 9th of the following month using the geometric mean of the change in the CPI of the previous month using the following formula:

{\ displaystyle UF_ {t} = UF_ {t-1} \ cdot Rd}

This includes the current day, the previous day and the daily value adjustment factor. This can be calculated as follows: ${\ displaystyle t}$ ${\ displaystyle t-1}$ ${\ displaystyle Rd}$

{\ displaystyle Rd = \ left (1 + {\ frac {vVPI_ {m-1}} {100}} \ right) ^ {1 / d}}

Here, the percentage monthly change in the CPI for the previous month and the number of days of the current calculation period. ${\ displaystyle vVPI_ {m-1}}$ ${\ displaystyle d}$

Individual evidence

Web links

[1] utm.cl - website with current and historical UTM figures

[2] Footnote 3, page 3 of the Decreto Ley N ° 828 de 1974

[3] Definition of UF (Spanish)

[4] Calculation formula for the daily UF