How to introduce a
silver coin into circulation in Mexico: The hybrid coin
Hugo Salinas
Price
Asociación Cívica Mexicana Pro Plata, A.C.
May 27, 2004
A paper
presented at the 2004 AIER Gold Conference, May 12-14, 2004
Great Barrington, Mass., U.S.A.
I am honored
by the invitation of the American Institute for Economic Research,
to present a paper on the subject "How to Introduce a Silver
Coin into Circulation in Mexico."
I think I have
discovered a means - perhaps the only means - by which a silver
coin can be introduced into circulation in Mexico.
My discovery
is applicable, I believe, not only in Mexico and with regard
to a silver coin, but anywhere in the world where the requisite
political will might exist to implement my plan; and further,
all I have to say with regard to silver in Mexico is equally
applicable to gold coins as well, anywhere in the world.
So, since this
series of conferences at AIER is principally devoted to the problem
of resumption of the use of gold as money, I must emphasize that
while I speak of silver in Mexico, all I have to say can be interpreted
as a plan for the reintroduction of gold as money, into the U.S.A.
My plan is
the result of nine years of thinking about the problem of fiat
money in Mexico. The last Mexican economic debacle of 1994-1995
prompted my search for monetary stability. Intuitively, I first
thought of gold, but I reached the conclusion that the enmity
of the United States and of the I.M.F. to the monetization of
gold, would make that avenue a dead end. Therefore, I took the
alternate route, the theme of monetizing silver, of which Mexico
is the world's number one producer.
Mexico's history
is inextricably linked to silver money, since silver minted in
Mexico was the world's most important money for centuries. All
of you know that the U.S. silver dollar, as defined in the Constitution,
is based precisely on the characteristics of the "Ocho Reales"
coin minted in Mexico.
The historical
memory of our silver coinage is still with us. It was a popular
coinage for everyday use, unlike the gold coin which was reserved
for more important transactions, until U.S. pressure after the
Spanish-American War forced Mexico onto the monometallic use
of gold. I refer you to "Financial Missionaries to the World"
by Emily S. Rosenberg for an account of that episode.
The Mexican
audiences which I have addressed in the last nine years, have
enthusiastically received my idea regarding the introduction
of silver into circulation. It is too early to say whether or
not, my plan will come to fruition, but there are hopeful signs.
I believe that
the only road to a monetary system which will permit the survival
of industrial civilization, has something to do with retracing
the steps that brought us to our present plight.
Paper money
was introduced after real money existed. For a time, paper and
gold and silver coin circulated together, side by side. The abuse
of over-extending and mismatching credit finally resulted in
the creation of such large amounts of paper money, that real
money became an obstacle to further creation of the paper money
required to keep an overextended credit system solvent, and so,
real money was finally ousted and we are today, worldwide, struggling
desperately with fiat paper money to keep our civilization working.
I believe that
we must go back the way we came, by reintroducing real money
to circulate in parallel with paper money.
I cannot imagine
any country in the world, or any group of countries, reforming
paper money and our banking systems as we know them, and reinstituting
gold or silver coinage and bills redeemable for metal at sight.
I do not believe
that the world's monetary and financial system can be reformed;
any attempt at reform would decimate the world's economic activity
instantly. There is no alternative: we have to let the world's
monetary and financial system proceed to its own destruction;
we cannot "go back to gold."
What we must
therefore strive for, as possible, is the reintroduction of silver
or gold - or even both - to circulate in parallel, along with
the fiat paper money we presently use everywhere. Eventually,
the world fiat money system will destroy itself through its own
inherent defects. Humanity has selected gold and silver as money.
No other metals or objects have served humanity as well. The
precious metals will never be supplanted by fiat money. The fiat
money time we are living in, is an aberration in an instant in
human history which will soon pass.
Once silver
and gold, or either one, in whatever quantity, is in circulation
in parallel with paper money, a number of beneficent things will
begin to happen. These things will further enhance the attraction
of the precious metals as money, reinforcing the movement towards
real money.
Slowly, the
world might begin to regain its monetary and financial composure,
after the paper orgy of the past hundred years, with paper issue
tamed and civilized by the presence of gold or silver circulating
in parallel with it.
Is there a
political will to implement my plan anywhere in the world? That
I do not know. I do have the conviction, that the plan I propose
will work, that silver in Mexico, or gold in the United States
or Europe or anywhere else, can be brought into circulation in
parallel with paper money.
At the present
time, it is becoming increasingly clear that the present monetary
and financial paradigm based on fiduciary money is close to coming
to a catastrophic end. There exists international concern which
heightens day by day. It is imperative to effect significant
change and to restore sound money, on which the very survival
of our industrial civilization depends. However, how to get there
from here, is by no means clear.
I believe my
plan offers a viable way to "get there from here."
It does not address the reform of the present worldwide system
of fiduciary money. It outflanks the problem by resorting to
the introduction into circulation of real money, in parallel
with fiduciary media. It is my fond hope that other minds interested
in the vital subject of sound money, may find some inspiration
in what I present, and that better minds than mine may wish to
focus their political efforts and monetary research along the
line I am sketching, sharing my conviction that it is the way
forward to viable change.
In my view,
when silver coinage is introduced into circulation, the idea
that silver coins can be money becomes an enormously important
and irrefutable fact. The precious metals are painted as
"antiquated," superseded by technology and modern finance;
those of us who insist on gold are derisively labeled "goldbugs";
however, as soon as we are able to put silver or gold into circulation
in parallel with paper, all those arguments crash, faced with
the fact that silver or gold can and do circulate in parallel
with paper, and actually receive the total approval of the population.
It is vital to remove the intellectual obstacle to a return to
sound money that is based on the simple fact that silver or gold
are not in use.
As in all things
that are to work naturally and automatically among millions of
human beings, simplicity is essential.
The plan I
propose is quite simple.
Here is my
plan, as it stands for Mexico:
1. The one
troy ounce pure silver coin minted by the Mexican Mint, which
is currently an official coin with certain quite limited legal
tender characteristics, and which is one of the "Libertad"
series of silver coins, will be selected as the coin to circulate
in parallel with paper (fiduciary) pesos. This coin has no
nominal value engraved upon it. This is an essential characteristic
of any coin that is to circulate in parallel with paper money.
2. The Mexican
Central Bank will issue a daily quote on the full legal tender
value of the one ounce "Libertad" coin, expressed in
fiduciary pesos. At its quoted legal tender value, the coin is
good for all types of payments, without discount of any sort.
3. The Mexican
Central Bank will not reduce any quoted value of the "Libertad"
ounce in fiduciary pesos, in any future quote. Successive quotes
may stipulate a higher value in fiduciary pesos; or, there may
no change in a quote for a period of time; but in any case, there
will never be a lower quote for the "Libertad" ounce.
Such is my
plan for the introduction of silver into circulation in Mexico.
What follows
is an explanation of the three points I have mentioned, and some
opinions with regard to consequences which might be foreseen.
The coin must
have no nominal value. In our paper money universe, with bills
distinguished mainly by the numbers printed upon them, to engrave
a precious metal coin with a value which is expressed in terms
of paper money, is to condemn the coin to disappear from circulation.
This will occur with complete certainty, the moment that the
market price of the precious metal in the coin approximates or
surpasses the engraved paper money value. At that moment, the
coins will be gathered for melting into bars which are worth
more, in paper money, than the total engraved paper money value
of the coins.
Nominal value
coins are static in value. They cannot float in a universe of
paper money which is inflating. It is indispensable that the
legal tender value of a precious metal coin must be a floating
value. Only a precious metal coin of floating value can remain
indefinitely in circulation, along with paper. The gold and silver
coins that were displaced by paper, all had values engraved upon
them - that is why they disappeared.
Another point
is that the coin to be selected for use as money, must be of
a weight, or a fraction of a weight that is defined by the system
of weights and measures. The troy ounce is such a weight. A half,
a quarter, a fifth, a tenth or twentieth of a troy ounce might
be monetized, instead of the full troy ounce. It would not be
possible to monetize more than one unit at a time. What must
be avoided is the monetization of a coin called "the silver
peso," with a definition of its weight, for the simple reason
that it is all too easy to change the definition. A troy ounce
or fraction thereof, will always be the same weight.
The reason
I selected the full troy ounce "Libertad" coin for
monetization, is that there exist in the hands of the Mexican
population, well over 20 million "Libertad" coins.
It is good to start from something already in place.
If the price
of silver were to rise to unsuspected heights, then later, the
new coin to be monetized and quoted, might be the one-tenth of
a troy ounce coin, which incidentally, already exists. The full
ounce coin would not be demonetized formally; I believe it would
continue to function monetarily, as a multiple of the smaller,
quoted coin. However, the legal unit would in this case, be the
smaller, one-tenth ounce coin.
My plan calls
for the monetization of only one coin, not for a set of coins;
for the same reason that the U.S. Constitution defines only one
unit of precious metal as the "coin of the realm" -
the silver dollar.
The Mexican
Central Bank, Banco de México, S.A., is to quote a legal
tender value for the "Libertad" coin. I have suggested
a method by which a quote could be determined, but this suggested
method is optional and can be modified to suit the convenience
of the Central Bank.
Basically,
the coin should be quoted starting from the international price
of silver; the source of that international price is optional.
The international price must then be translated to Mexican fiduciary
pesos, according to the rate of exchange prevailing at that date.
The Banco de
México will wish to cover its minting costs and also,
obtain a reasonable seignorage. After these have been worked
into the quote, the quote should be rounded up to the nearest
higher figure which is a multiple of five. (We cannot expect
the populace to remember the day's quote if it is such a number
as $107.43 pesos, nor to use such a figure in payments made or
received.)
How high should
the seignorage be? It should be a reasonable seignorage. Not
more than 10%, I would venture to suggest.
The Central
Bank quote of the silver "Libertad" ounce will overvalue
the coin, in terms of silver bars. This should be the case, in
order to ensure that the coined silver remains in Mexico. The
coined silver will purchase more in Mexico, than it will in the
U.S., because the "Libertad" ounce will be legal tender
in Mexico, but not in the U.S., where it will simply be a silver
coin and valued as such.
However, I
should note that even with overvaluation, a not inconsiderable
number of people in the U.S. may want to acquire this coin, since
it will be legal tender in Mexico, with a floating value which
is constructed upon the dollar (or euro) value of silver, and
which floating value cannot be reduced. I leave to your imaginations,
the attractiveness of such a coin for Americans.
No subsequent
quote can reduce the value of a prior quote. This is an intriguing
point which has caused criticism, due to lack of understanding.
The silver
ounce "Libertad" coin would be what I have decided
to call a hybrid coin.
There has never
been a hybrid coin in the history of the world. But then, the
world has never in its history been in thrall to paper money,
as it is today.
The "Libertad"
would be a hybrid coin, because some of its qualities would derive
from its precious metal content, and some of its qualities would
be shared with fiduciary money - not surprisingly, if it is to
circulate in parallel with fiduciary money.
When the international
price of silver goes up in dollars, or pounds, or euros, whatever
the base chosen for the quote; or whenever the fiduciary peso
falls in value with regard to the dollar or other chosen base
currency, the quoted legal tender value of the "Libertad"
goes up. It will not go up for small changes, because the quote
contains certain buffers: the seignorage and the rounding up
to the nearest multiple of five are buffers which absorb small
changes in silver prices and small changes in exchange rate of
the peso.
In going up
this way, the "Libertad" is acting like a commodity
coin.
However, when
the international price of silver falls, or when the exchange
rate of the peso strengthens, the quoted legal tender value of
the "Libertad" does not fall. As in the case of any
printed bill anywhere in the world, whatever happens to the exchange
rate does not affect the legal tender value of the printed bill,
nor the quoted value of the "Libertad" coin. The printed
peso bill may buy more, if the exchange rate strengthens, but
the legal tender value is still, for example, One Hundred Pesos.
The same situation
applies to fiduciary coinage. We have coins for one peso, for
five, ten, twenty and fifty pesos, but they do not lose a part
of their legal tender value, because the peso price of nickel
or copper or whatever other metal they are made of, has fallen.
Similarly, if the peso price of the silver contained in the "Libertad"
coin falls, whether due to an increase in foreign exchange value
of the peso, or to a fall in the international price of silver,
the quote established for the coin does not diminish.
In retaining
its legal tender value this way, the "Libertad" is
acting like fiduciary money.
In order for
a precious metal coin to circulate permanently alongside of fiduciary
money, it must be a hybrid coin. It can go up in purchasing
power, like a commodity coin; but like fiduciary money, it retains
its legal tender value when the metal it contains goes down in
price or when the exchange rate of the medium in which it circulates
appreciates. It is a hybrid coin, it has a double nature.
We have abundance
of commodity coins, but they are not money. Holding them may
be a good speculation on future purchasing power, but it is still
speculation. Some people like to speculate, but the mass of any
population does not wish to speculate. The vast majority of individuals
cannot, under any circumstances, accept in payment, without question,
a coin whose legal tender value may diminish tomorrow.
For the commodity
coin to turn into money, it must have a quoted legal tender
value which must not diminish, like fiduciary bills and coins.
Unlike fiduciary bills and coins, the commodity coin which has
become money must appreciate in legal tender value, when the
metal it contains goes up in value or when the fiduciary money
amongst which it circulates, falls in exchange rate. Otherwise,
that coin is headed for extinction at the smelter.
I repeat the
three steps to introducing a precious metal coin into circulation:
1. No nominal
value. A recognized unit of weight, or fraction thereof.
2. A quote by the Central Bank which gives it full legal tender
value.
3. No subsequent quote can diminish the previous quote.
Now you know
the substance of my plan for the reintroduction of silver into
circulation in Mexico. I think you will agree it is a simple
plan. The Banco de México quotes a daily price for the
U.S. Dollar. I cannot see why it should be so difficult to quote
a full legal tender value for the "Libertad" ounce.
Given a method, any subordinate employee may carry out this quote
function quite easily, and communicate it to all the banking
system and the media, for its communication to the population.
A few people
may make the mistake of using the quoted coin, with a previous,
lower quote, to their loss. But they will soon learn to avoid
such losses. Such people can also make the mistake of using their
dollars at less than their present worth in pesos. Such mistakes
are totally inconsequential, except to the individuals concerned
- and they quickly learn not to make those mistakes.
The reintroduction
of silver into circulation in Mexico, would make it the first
country in the world to have in circulation, simultaneously,
two monies of different quality. The fiduciary peso on the one
hand, with no quality whatsoever (it is simply a digit, like
the dollar) and the "Libertad" ounce on the other hand.
It is my opinion that the first country in the world to carry
out such a reintroduction of precious metal into circulation,
will acquire enormous prestige and will soon be imitated by other
countries.
I can visualize
an enormous demand for this silver coin turned into money. The
holder of the "Libertad" ounce is no longer speculating
on a future appreciation of his ounce. He owns a coin which is
money, and which will not diminish in legal tender value, and
which has the possibility of rising in tandem with any possible
rise in the price of silver.
Unless the
demand for the coin were fully satisfied by the Banco de México,
there would probably arise a parallel market for the coin. Its
advantage of being an undevaluable coin would cause such a demand
for it, that people would be willing to pay more than the legal
tender value of the coin, in order to possess it. In order to
bring the parallel market price for the coin down to its legal
tender value, the Banco de México would be compelled to
coin large quantities of this coin.
Our monetary
inflation in Mexico is considerable. In the past eight years,
from December 1995 to December 2003, according to Banco de México
figures, the quantity of M1 has increased five times. This is
mainly because of the influx of dollars coming in from the U.S.
Whatever the cause, the increase in M1 need not come about as
a result of silver coinage going up in quoted legal tender value.
If the coins go up in value, the quantity of additional fiduciary
media put into circulation might easily be reduced to accommodate
the silver money. If we are necessarily going to have an increasing
M1, why not make a substantial part of it, "Libertad"
coins with full legal tender value?
The internal
market for the silver "Libertad" ounce could be in
the hundreds of millions of ounces.
How would the
Central Bank know when the market was saturated? The clear sign
would be, when people begin to return silver coin to the banks
for deposit or transfers. When the banks report that they have
sufficient silver coins on hand for their operations, the market
is saturated.
It seems to
me, that it is necessary to understand clearly, that savings
- that indispensable fount of future wellbeing - do not and should
not require interest on the savings, to seduce people into saving.
People will save - some of them more disposed by nature to save
than others - when what is saved is worth saving. That savings
should be motivated by a corresponding interest earned, is a
vicious idea. Savings are their own reward - the knowledge that
one is secure in one's future, is a great reward. No further
reward is necessary, if the medium for saving is worthwhile.
Mexico is a
country that needs savings, but our peso does not satisfy us.
We turn to other money, for instance the U.S. dollar, for savings.
Or, we require high interest payments on short-term or even sight
deposits. Clearly, this a requirement impossible to satisfy in
reality. No stable and serious financial system can provide high
interest on short-term or sight deposits. Financial breakdown
is guaranteed, in time.
The "Libertad"
ounce, turned into money, would be a powerful incentive to savings,
indeed.
By exporting
our silver as a raw material, Mexico is doing itself great harm.
It has at hand, the means to create for itself, the best money
in the world, which can circulate in parallel with its fiduciary
money. But this has not been done. We are depriving ourselves
of the possibility of possessing real wealth in the form of our
money, a wealth that can increase if silver prices go up in the
world.
Our fiduciary
money can proceed as it has been proceeding, buttressed perhaps
by the prestige of the silver which circulates alongside it.
Eventually, all fiduciary money all over the world, will turn
to dust. The silver "Libertad" ounce with no nominal
value, will be in existence for centuries to come, when our turbulent
times are chronicled in dusty libraries.
One thing that
could not be done with the monetized silver "Libertad"
coin, would be to denominate credit contracts in "Libertad"
coins. Borrowers would be going short silver in accepting loans
denominated in "Libertad," and lenders would be going
long. The predictable result would be, an inability on the part
of borrowers, to return "Libertad" coins in payment.
The lenders would find themselves unable to collect.
Therefore,
the contractual vehicle must continue to be the Mexican fiduciary
peso, exclusively.
Only at a much
later date, invisible in our time horizon, would it be possible
to think of a Mexican peso fully convertible at a given rate.
Perhaps, given our experience with human frailty, the attempt
at full convertibility at a given rate would prove disastrous.
Our whole world is based on credit expansion and credit mismatch.
We cannot change that, without changing our whole world. For
practical purposes the silver "Libertad" would be,
for a very long time, a vehicle for savings on a personal level,
perhaps on a corporate level as well, and for payments in day
to day needs.
Banking systems
the world over, are allergic to real money. If they are obligated
to turn to real money for denominating loans, they collapse and
with them, our industrial world. It is essential to their life,
to borrow short and lend long, and to continually expand loans
outstanding. They cannot be saved in their present state.
Therefore,
let us allow the paper, fiduciary money games to go on. Credit
contracts will be denominated in pesos, not in "Libertad"
ounces, except for the imprudence of those who dare to do otherwise.
Personal savings
in silver "Libertad" ounces would be secure, to be
mobilized by the individual at his discretion, for whatever he
might deem important enough to mobilize his savings, be it ordinary
purchases, emergencies, or investments for the purchase of capital
goods.
Another doubt
which I have heard expressed, regarding the possibility of having
silver circulate in parallel with fiduciary money, is that "the
silver will be hoarded."
Of course it
will be hoarded! That is just another name for savings. Those
that do not want the people to have their own savings in their
own custody, are the banks, of course. They want deposits! They
do not want people to hold on to their savings in the form of
silver coins. They want to have the people deposit their savings
in the banks, so they can lend the savings and make money for
themselves on the interest charged. They are against any alternative
for people, regarding savings.
The beauty
of the hybrid coin, is that the hoarding or saving is done is
with a coin that is spendable with a known legal tender value.
This saving is not a speculation; as I have said, people in general
are averse to speculating with the value of their wages or profits.
Hoarding silver or gold commodity coins is a good speculation,
in my view. But few people want to speculate in this way. If
the silver coin is money, spendable at any moment for an emergency
or for any other reason, saving silver "Libertad" ounces
becomes a very different matter. That a coin is hoarded does
not mean it is "out of circulation." It certainly is
in circulation. The owner knows at any moment how many coins
he owns, and their exact legal tender value. His coins will be
spent, when he decides to spend.
There is a
limit to the aggregate amount of hoarding or saving that any
community wishes to effect. Some peoples are more disposed to
save, than others. When individuals in Mexico decide that their
savings of "Libertad" coins are sufficient for their
needs, they will begin to spend the additional "Libertad"
coins that come into their possession, along with fiduciary bills.
This is when
the banks will notice that silver coins come back to them just
as fast as they pay them out. At that point, the Central Bank
can suspend further coinage of "Libertad" coins, until
demand increases again. That moment, I am quite sure, would not
be reached until after decades of coining the "Libertad"
ounce.
How would the
introduction of silver into circulation affect the banking system?
This is a question which invites further study. I shall only
point out, for the sake of brevity, that this is not a "silver
problem"; it is a "banking problem" that might
be likened to a flight from pesos into some foreign currency.
At first sight,
there might be two ways to stanch the flight.
The first is
that the Central Bank would determine the quantity of silver
to be minted. This is not a plan for the free coinage of silver.
The second
is that interest rates might compensate the saver for not saving
in silver.
Would the monetization
of the silver "Libertad" ounce be inflationary? This
point has no practical significance at present, and will not
have it for the foreseeable future. Mexico is on a fiduciary
peso system which is a derivative of the dollar. We are importing
American monetary inflation whether we like it or not. It cannot
be avoided, because our Central Bank produces monetary inflation
when it acquires additional dollars for its reserves. Our banking
system, like all others around the globe, functions by borrowing
short and lending long, and this inherently requires the creation
of additional money to remain solvent.
However, the
quality of the silver ounce as money precludes, I believe, any
impact on rising prices from the coinage of silver, because people
would be saving most coins that would come into their hands.
When, as I have said, the impulse to save has been satisfied
- something that will take some doing - then we might see the
coin used in everyday commerce. However, until that happened,
we would not feel any inflationary pressure beyond what we already
suffer, since we are on a monetary system which is inherently
inflationary. When the Mexican population's need for silver is
satisfied, the next point becomes interesting.
The Mexican
fiduciary peso, unlike the dollar, has no "international
passport." It cannot travel. Fiduciary pesos created, exert
their inflationary influence in Mexico, they do not go abroad
like dollars. The silver ounce can acquire an international passport.
The outlet for additional coinage of silver, could be once again,
what it was one hundred years ago: payments for foreign purchases.
The monetary
use of the "Libertad" coin need not be necessarily
limited to Mexico. If the Banco de Mexico in the future were
to gradually reduce the overvaluation of the silver coin to a
point slightly over par with silver bars, then I suspect that
Mexico might offer payments in silver to cover part of its imports.
This is still in the distant future, but for the sake of argument,
I doubt that payment in monetized silver would be rejected internationally.
This was made a problem one hundred years ago, and served
to pressure Mexico and Latin America to abandon the monetization
of silver and go to gold, in line with London and New York, to
the great detriment of all Latin America.
At present,
savers in Mexico are the victims of the same "Catch 22"
situation that prevails around the world. If your country's Central
Bank has too many dollars in reserves, it is inflating your pesos,
and prices will go up in your country; eventually your industry
is priced out by foreign competition. Your savings will eventually
have to be devalued.
If your country's
Central Bank does not acquire more dollar reserves, your money
will go up in value as the dollars are sold in the internal market,
and so your country's export markets disappear. Your savings
will eventually have to be devalued.
Silver coinage
represents real wealth in the hands of its owner. Silver coinage
is oblivious to any question of reserves, of good or bad politics,
of intelligent or inept management. It is an alternative to the
pernicious dollar reserve system that prevails.
There are other
possible effects of silver in circulation, which might merit
the attention of those interested in a theoretical analysis.
I can only sketch the outline.
Mexico has,
like so many other countries in the world, striven to create
industries as a means of creating jobs.
In order for
Mexican industries to achieve significant size, they have had
to resort to borrowing dollars. In order to obtain dollar credits,
they have had to demonstrate a capability of earning dollar income,
and thus, they are naturally oriented primarily to serving an
export market, not an internal market.
If there were
an important amount of silver in the hands of the public, providing
this public with goods produced in Mexico might become more attractive
to Mexican industries, than it is at present. Why seek dollar
payment, when the silver "Libertad" ounce is a superior
currency?
Silver in the
hands of the public in significant quantities, strengthens the
internal market. In the case of a collapse of exports, which
would surely come with a collapse of the dollar and international
trade, we could count on the support of an internal market ready
to pay with silver. The world relies far more than is healthy,
on exports.
Argentina is
an excellent warning about what can happen to the population
of a country that is left without sound currency. At one point
in recent years, 18 different kinds of scrip were invented, to
keep production moving to consumers. Why expose ourselves to
such an ordeal?
In my view,
the best protective action that can be taken to minimize the
danger of a collapse of exports is to place important amounts
of silver in circulation, at once.
I invite those
interested in the subject, to delve further into this theme.
How high might
the price of silver go, if this plan were adopted? No one knows,
but I think it likely that the creation of a new and vast market
for silver as money, would probably exert an upward influence
on international silver prices. This would certainly benefit
Mexico, which has been exporting its precious silver at extremely
low prices for many decades, to the detriment of its mining sector
and Mexicans in general. I can easily imagine the silver "Libertad"
worth $100 U.S. dollars in present day dollars.
What if there
were a speculative spike in silver prices, like that produced
by the Hunt brothers' speculations of the 80's? Would the silver
ounce receive an unrealistic legal tender value as the price
went skyward? What happens when the price collapses?
The Central
Bank need not be hasty. It can take its time, if in doubt, about
issuing a higher legal tender value quote. If the price of silver
left the quote of the "Libertad" far behind, some people
would begin to sell their ounces to entrepreneurs who would melt
them down for sale as high-priced bullion. But it would certainly
take a long time for this activity to impact seriously on the
stock of silver in the hands of the public. Most people might
well decide to hold on to their "Libertad" coins, expecting
a new, higher quote in due course.
The Central
Bank, faced with the emergence of a speculative bubble in the
price of silver, could delay a new and higher quote until it
became clear that a new and higher price of silver was in place.
Then it would issue a new quote.
If the price
of silver should fall precipitously, nothing at all would happen.
The silver coin would continue in use, with a lower value for
its silver content, but not for its legal tender value. If anything,
the Banco de México would derive a higher seignorage from
further minting of "Libertad" ounces. Certainly, no
one would turn in their coins because the price of silver had
fallen. If anyone wished to speculate on a new rise in the price
of silver, they would turn in their paper pesos to do this -
something which they can do at any time, at present, in any event.
In the coming
world monetary, financial and economic debacle, perhaps silver
payment might become acceptable internationally. In this case,
I can imagine that all of Mexico's silver might be directed to
coinage, for an indefinite period. Present production is over
2,000 tonnes per annum. Reserves in the ground are ample.
In conclusion:
I believe my
plan makes it possible to place silver coinage in circulation
in Mexico in parallel with fiduciary money.
If at the present
time, it is not politically feasible to carry out this plan,
a hyperinflationary situation might change the attitude of the
monetary authority. It is convenient to have a well thought-out
plan held in reserve for such a terrible emergency. Silver circulating
in parallel with hyperinflating paper, might serve to stem the
destructive tide.
A country where
the savings of the people are not only in banking deposits, but
in silver coins, usable as money, held at home or in other secure
places, is a happy country.
A satisfied
population has less incentive to revolution and less incentive
to emigration to the U.S. Tranquility and enjoyment of life as
Mexicans understand it becomes possible, along with political
stability, financial security at the home level and pride in
their country. And besides this, a plethora of other blessings
too numerous to mention.
I thank you
all for your kind attention.
Hugo Salinas Price,
President
Asociación Cívica Mexicana Pro Plata, A.C.
May 2004
Email: 254hsp@elektra.com.mx
Website:
http://www.plata.com.mx
321gold Inc
Miami USA

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