Sunday, October 21, 2018
bienvenidos, benito -- y adiós
When Italy's 1999 transition date from the lira to the Euro grew near, Italian housewives marched in the streets banging pots.
They were not celebrating the impending arrival of a Brave New World of Currency. They feared that their household budgets would be eviscerated in the change over. That switching from a multi-digit lira to a fewer-digit Euro would somehow affect the amount of food they could buy each day.
It turns out they were correct -- for a lot of very complex fiscal reasons. As a result the Italian electorate is agnostic about the Euro and the European Community.
Something similar may be afoot here in Mexico.
It has been less than two months since the Bank of Mexico issued its new 500-peso note featuring the face of President Benito Juarez in a pleasant blue shade (money makes the words go round). It has been something of a scavenger hunt finding them here after an initial onslaught.
When the new note was issued, the Bank stated new notes (50, 100, 200, and 1000) would be issued during the next five years and the current notes would be taken out of circulation. At least around here, the old 500-peso notes are not disappearing. I see more of Diego Rivera's ugly mug than Benito Juarez's stare.
Looking at that list of denominations for the new notes, you may notice something is missing. There is no mention of the 20-peso note (the doppelganger of the new 500). And there is a good reason for the omission.
A friend contacted me yesterday to ask how long the 20-peso notes would be legal tender -- or was it just a rumor they were being phased out?
I responded I had not heard that news. And, then I remembered the Bank's announcement about the new notes. The 20-peso note was missing.
A quick bit of research refreshed my memory. There is no secret.
The Bank openly announced it will be phasing out the 20-peso note in favor of the 20-peso coin. Most of us have seen one or two of those coins over the years. But they are rare. According to the Bank, they will be far more common.
Today, I talked with a couple of merchants who are hoarding every 20-peso note they receive in payment. And the reason is simple. Here, the 20-peso note is the change draft horse of small shops. Waiters rely on them for tips. Street vendors for payment. It is the Valentina sauce of currency.
I have already heard murmurings that the Bank is up to no good. Whenever currency changes, Mexicans get nervous. Neither the government nor the Bank has built a reputation of trust when it comes to fooling around with banknotes.
The Bank included one other tidbit in its late August announcement. It will be printing a new note -- a 2000-peso note -- if “such a bill is required to satisfy user’s needs.”
When I mentioned that to the merchants, they looked worried. They could not explain why, but their gut instincts may have been similar to what Mexican economists have been discussing for the last two months.
The 2000-peso may be bad news for two reasons.
The first is not surprising. Most nations have been considering phasing out their highest denomination notes in an attempt to stymie illegal activity. The goal is to transition to a cashless society.
By considering a 2000-peso note, Mexico is effectively saying it does not want to use its monetary system to handicap illegal cash transactions.
But, the possibility of a new note -- with a face value twice the amount of the current largest bill -- is also an admission that Mexico is suffering from years of monetary inflation. Larger bills simply recognize the reality that in the ten years since the notes were last revised, Mexico has suffered a 51% accumulated inflation rate, with a commensurate 34% reduction in purchasing power. During the same period, average wages barely changed.
The publication of a 2000-peso note will simply be a public acknowledgement that household budgets are not keeping pace with the cost of basic needs. And like those Italian housewives, Mexico may doubt the value of its own currency. 41% of Mexicans currently do not earn a daily wage adequate to not buy a daily food basket. And, without an offsetting increase in productivity, raising wages will only decrease the purchasing power of the peso.
The combination of inflation and the preference to pay cash will almost certainly lead the Bank to determine there is a "need" for a 2000-peso note. It will be interesting to see how the public reacts.
Housewives bang pots for good reasons.