Reasons for monetizing the 'Libertad' silver ounce

Wednesday, 9 March 2011

Ramiro Tovar Landa

Duke University
Lecturer at the ITAM - Mexico

1. Access to saving instruments in Mexico is becoming more restricted as household income decreases.

2. The average value of a deposit account in commercial banks is just 19.4% of per capita income, one of the lowest levels in the world.

3. The value of deposit accounts in commercial banks is just 15.08% of the GDP, also one of the lowest levels in the world. By way of a comparison, in Rwanda and Zambia, participation in the GDP is 16.8% and 18.5% of the GDP, respectively [sic].

4. More savings instruments should be made available to the public, particularly in the lower-income sector. Savings instruments must meet two functions: maintaining value and being accessible and available. Savings stabilize the flow of income and, therefore, stabilize people’s lives.
 
5. The savings of 28% of “non-banking” homes and 40% of “banking” homes in Mexico are not part of the formal financial system. In the lower-income sectors, 20% use non-formal ways of saving and 40% invest their savings in physical assets.

6. Savings in federal government bonds (CETESDIRECTO) do not protect the value of savings, as the yields of the rates offered are virtually nil, sometimes negative.

7. The monetization of the silver ounce offers the population a means for savings with the characteristics requisite for a physical investment instrument of massive penetration and without transaction costs (contracts and commissions for banking services): i) protection against inflation and therefore protection of savings, ii) accessible by all levels of income and iii) immediate liquidity.

8. The yield of monetized silver would have been one of the best in comparison with other means of savings, such as liquid accounts, government debt and other informal means, and would have benefited the public more than any other public income support program for the lowest tenths of the population.

The graph below shows the behavior of the silver ounce over the last five years: