Stephen Baker

The Numerati
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Math to free up Mexican cash

April 20, 2010News

While researching The Numerati, I traveled down to Miami for the annual awards ceremony of INFORMS, the Institute for Operations Research and Management Science. This is the kind of organization I never dreamed I'd be covering. But what they do is fascinating. Operations Research is the applied math used for modeling and optimizing just about every industrial and logistical process on earth.

Sometimes it's things you'd never think of. In last night's award ceremony, for example, the winner was the Mexican securities clearing house, Indeval. Using operations research, they optimized the settlements of securities transactions. Yes, it sounds boring. But it makes a difference, because while transactions are closing, the banks have to hold onto money. This new process reduced liquidity requirements by 52% in cash and 26% in securities.

Just one sign of how much things have changed in Mexico: When I was the BusinessWeek bureau chief in Mexico City, from 1987-92, we had ridiculously high phone bills, both for the office and my home office in the city of Cuernavaca. My secretary had to go to the bank with a bodyguard. She would return with stacks of cash. I would drive them to Cuernavaca, and my wife or I would take them to the telephone company to pay the bill. Talk about high liquidity requirements to close slow transactions.

Then there was the time we had our first of two babies in Mexico, in 1988. (He's graduating from college next month.) The birth cost less than $1,000. We expected they would bill us. But they demanded cash. We couldn't leave with the baby until we came up with it. It was Saturday and our bank was closed. We did not have bank cards with access to ATMs. So we had to call friends of ours, baptist missionaries, to scare up enough money to bail out our baby.


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