The Monopoly on the Issuance of Money - The Writters

The Monopoly on the Issuance of Money

Mexican Pesos, bank notes, currency bills, money background

Today I write about another monopoly that literally affects us “in the wallet”.

The total amount of money circulating in a country must be related to the number of goods and services produced by the economy. The production of these goods reflects the efforts of millions of workers who, combined with capital, add value to society. The least that can be expected in return for this effort is that it will be rewarded with a means of exchange that will retain its value over time.

For this to happen, by definition, inflation must be kept under control, and this is achieved by respecting the relationship between money in circulation and the value of total output. In our country, the one who has the obligation to maintain the value of money is the Bank of Mexico and according to its website“its main objective is to ensure the stability of the purchasing power of the currency. 

To achieve this objective, Banco de México operates a constitutional monopoly on the issuance of money and has several mechanisms of monetary regulation. In other words, it must issue the bills and coins necessary to enable transactions in the economy, not a penny more. The monetary theory is quite complex, but I am sure that the central bank has trained people to understand and fulfil their role.

However, the reality is that at some point something went wrong because the value of our peso has decreased dramatically in the last three decades; Let’s review the figures:

In 1976, when I graduated from TEC, a dollar was priced at $ 12.50 pesos, but it must be taken into account that at that time our currency had three more zeros, that is, the dollar was equivalent to $ 0.0125 current pesos. Today that same dollar costs $ 14 pesos, or simplifying, we went from $ 12.50 to $ 14,000 old pesos per dollar; so after 33 years the peso is worth 0.89 thousandths of what it was trading in terms of this currency – it is difficult to imagine such microscopic figures. But this is not the whole story.

Relative to gold, our currency’s loss of value is even worse, because an ounce of gold is currently worth $ 925 compared to $ 120 per ounce 33 years ago. In other words, the dollar, the currency of the most powerful country on earth, where the gurus of the Chicago School come from, lost 87% of its value in gold in three decades.

If today the dollar is worth little more than eighth in terms of this precious metal than it was worth in 1976, then the peso currently represents one ten-thousandth of what it was trading in terms of this metal.

In this sense, Mexicans have been victims of a great fraud, only that in contrast to the Madoff case, this other massive fraud affected millions, although it took decades to develop.

The loss of value of the currency generates, among other damaging effects, the inflation tax, the most unfair of all because it is not decreed, not published, or subjected to a democratic vote; it is simply imposed, and to top it all it mainly deteriorates the purchasing power of the base of the pyramid (BOP) since this segment of the population maintains a large proportion of their savings in cash.

Don’t put your interest in money

An American poet pointedly remarked, “Don’t put your interest in money, but put your money at interest.” If the base of the pyramid had had access to banking services in the times of highest inflation in modern Mexican history, it could have received interest on its savings, compensating to some degree for the loss of purchasing power of the currency – in fact, This is part of the vision that motivates Banco Azteca.

However, with practically zero banking use, the impoverishment of millions of families was proportional to the increase in prices, in order to finance a disproportionate and inefficient public spending.

A definition of insanity is “doing the same and expecting different results”, today many propose to apply the same recipe that was applied for decades. Isn’t this what is happening right now in the US, where the balance that supports the issuance of money from the Federal Reserve has almost tripled at a stroke? The world has lost its sanity, but this is the subject of another post.

AS AN AMAZON ASSOCIATE I EARN FROM QUALIFYING PURCHASES.