The Peso is a "Derivative"
of the Dollar
Hugo Salinas
Price
hsalinas@elektra.com.mx
August 13, 2002
All the currencies of the world,
are simply "derivatives" of the U.S. dollar. Perhaps
I should qualify this statement, with an exception: Possibly,
the euro of the European Union is not a dollar-derivative, for
the European Central Bank that issues the euro, does maintain
a - very modest - reserve of gold.
What is a "derivative?" A "derivative" -
a word much in use today in financial circles - is a financial
instrument that derives its value from another financial instrument,
to which it is related by a contract.
The Mexican peso, the Argentinian peso, the Brazilian real, the
Venezuelan Bolivar, the New Zealand dollar, the Australian dollar,
the Canadian dollar, etc., all these currencies are not real
currencies that belong to the countries where they are issued
and circulate. They are simply derivatives of the U.S. dollar.
The Mexican peso, for example, just like all the other currencies
I have mentioned, and those of the rest of the world, with the
possible exception of the euro, have no existence of their own,
they derive their value from the American dollar, through the
dollar reserves owned by the Bank of Mexico, Mexico´s central
bank. Mexican pesos are substitutes for dollars.
The proof is that the value of the Mexican peso, depends on the
reserves of the Bank of Mexico. As long as the contractual relationship
and the prospects of redeemability of the peso with regard to
the dollar seem to be stable, we have stability in the peso/dollar
parity.
What lends credibility to the peso, is confidence in its present
and future redeemability in U.S. dollars. The peso is worth something,
not in itself, but due to the possibility of redeeming it in
dollars at a rate that is not expected to change. Thus it is
clear that the peso is nothing more than a derivative of the
dollar, and this is a situation which prevails with regard to
all Latin American currencies.
In other words, Latin America specifically only has one currency,
the dollar. What we know as the currencies of Latin America are
only more or less trustworthy substitutes for the dollar. All
of Latin America is deprived of a currency of its own that is
worth something on its own. We must discard all notions of "national
sovereignty." We absolutely can have no national sovereignty
when we use the currency of another country, as our own. It is
specially serious that we are in fact using the dollar as our
currency, as I am stating, when the dollar itself is not a real
currency, but only an artificial unit, lacking any intrinsic
worth. The dollar is nothing more than a number. It is not redeemable
in anything tangible.
The dollar: form without substance
Aristotle stated that everything that exists incorporates matter
and form. The dollar, since it became irredeemable for gold at
$35 dollars an ounce in August of 1971, is an abstraction that
only maintains form, without matter. Therefore, it is nothing.
The whole financial edifice of all Latin America is constructed
upon these units of nothing, dollars. Our Mexican pesos are derived
fromnothing.
Can we possibly believe that we can look forward hopefully to
an economic future built upon pesos which are derived from dollars,
which in turn are nothing? If, someday in the future the history
of the Twentieth Century is written truthfully, it will have
to record as one of its most important characteristics, the progressive
elimination of the "substance" factor from money all
over the world. As long as money incorporated matter, or substance;
as long as money was gold or silver, and bills were redeemable
in silver or gold coin in strictly fixed amounts, the world was
anchored to economic reality by means of a money that also incorporated
a reality. The reality of the money of the Nineteenth Century
was its substance, gold or silver, together with a strict obligation
on the part of those who issued bills, to redeem them in such
substance.
When the First World War broke out in 1914, some observers thought
that it could not go on for very long, because the reserves of
gold would soon run out and it would be impossible to carry on
the war for a lack of funds. Little did these people imagine
that governments would keep right on warring, without gold, just
printing money - counterfeiting money - in the amounts required
by the war.
So, 1914 was the first decisive step in the monetary degeneration
the world has suffered since then.
Up to August 14, 1971, there was still a very tenuous connection
with economic reality: the U.S. were under the obligation to
redeem dollars in the hands of other countries, at $35 U.S. dollars
per ounce. But on August 15, the U.S. stopped redeeming dollars,
and for the first time in history, there was not a single real
money in the whole world.
As of that date, the history of the world has been the history
of abuse of the creation of the artificial money we all use.
The U.S. is no longer bound by any limit to the creation of dollars.
The U.S. exports inflation
The abuse of money creation by the U.S. is not something that
produces bad consequences only in the U.S. Since the dollar is
our money, because our currency is nothing more than a derivative
of the dollar, the abuses in money and credit creation in the
U.S. produce serious shocks in Latin America. We have mentioned
before, on these pages of the internet (www.plata.com.mx),
how credit expansion (debt expansion) in the U.S. produces the
export of monetary inflation to our countries, and forces the
devaluation of our currency-derivatives, the destruction of internal
savings denominated in such derivatives, the destruction of financial
systems with the high interest rates that come about as a consequence
of devaluations and the collapse of our productive systems.
An article on these pages - www.plata.com.mx - (a translation
of "The Significance and Sanity of Silver as Money) by David
Morgan mentions that the dollar is created by debt. When either
an individual or a company takes out a loan at a bank, the bank
creates money. Runaway creation of money corresponds to runaway
creation of credit, and credit increases at a mad pace when debt
increases at a runaway rate.
Debts in the U.S. have shown a spectacular growth, not by coincidence
since August 1971, and especially in recent years. Lately, growth
is uncontrolled. There will come a moment when debt cannot be
increased further. At that moment, there will be an implosion
and all debt, in the hands of creditors, will want to be liquidated
- converted into cash balances. Only a small portion of the debt
will actually be liquidated, that is to say, turned into cash.
Most of it will be unpayable, or will be paid only partially.
The I.M.F. medicine: more dollar
debt
Those of us who live in Latin America feel that we have not known
how to manage our affairs correctly, and so we have suffered
so many crises. The Argentinians are the ones who have recently
suffered most.
The fact is that it has been a disaster to base our economies
on currencies that are not more than derivatives of the dollar,
momentary substitutes for the dollar, currencies which have no
value of their own, currencies that derive their value from another
currency which, in turn, is nothing, and issued by a country,
the U.S., which is now undergoing extremely severe problems as
a result of abusing the creation of its own currency. To lay
the foundations of our economies upon such a base, guarantees
the failure of every hope for a better form of life. It could
not be otherwise. The I.M.F. lost any purpose, if it ever filled
one at all, with the bankruptcy of the U.S. in August of 1971.
Bankruptcy, because not to pay a debt, is bankruptcy.
The I.M.F., as it operates today, is totally obsolete and does
nothing but further damage upon past damage, with its only medicine:
prescriptions of more debt to the patients. On August 8th it
announced a credit - new debt - for Brazil, for the amount of
$30 billion dollars.
The I.M.F. serves no purpose. We must think things over, we have
to admit the truth: our currencies are nothing more than junk
derived from other junk, the dollar.
It is not possible to build prosperity upon junk currency, just
as it is not possible to build a skyscraper with mud brick.
The imperative
We have pointed out that it is imperative to introduce real money
into circulation, gradually, in parallel with the junk money,
so that in time we can reconstruct our economies upon durable
foundations. We have not received a favorable response from those
responsible for the welfare of the country. The greatest problem
is that those in charge do not understand what is going on, and
not understanding leads to fear of making any changes. Of course,
we have the enormous interests that want things to remain as
they are, until we go over the cliff. The political influence
of the U.S. is enormous, and the empire wishes to impose its
currency upon us, to its advantage. Thus Larry Summers, who was
Treasury Secretary and is now President of Harvard stated in
1992:
"In the long term, finding ways of bribing people to dollarize,
or at least give back the extra currency that is earned when
dollarization takes place, ought to be an international priority.
For the world as a whole, the advantage of dollarization seems
clear to me" (Note 1)
A Chinese proverb says, "It is better to light one candle,
than to curse the darkness." We insist on the imperative
need to have a real currency. We intend to enlighten consciences,
one by one. We recall José Ortega y Gasset who said: "Men
do not think, really think, until they feel they are done for."
Little by little the ideas we are expressing will filter through,
until one fine day, one of those men who can decide matters will
say "Enough! We're not wasting one more day! We're going
to silver." This will have to happen, because the present
course of events is not sustainable and the system is coming
down.
Note
1:
(1992 "Rules,
Real Exchange Rates, and Monetary Discipline. In Nissan Liviatan,
editor, Proceedings of a Conference on Currency Boards and Currency
Substitution, pp. 32-3.) This suggestion by Larry Summers was
quoted at the beginning of a report titled "Encouraging
Official Dollarization in Emerging Markets" and prepared
by Kurt Schuler, senior economist for the office of Senator Connie
Mack, in April 1999. Schuler was in charge of preparing the report,
with the title: "Joint Economic Committee Staff Report,
Office of the Chairman, Senator Connie Mack."
Hugo Salinas
Price
eMail: hsalinas@elektra.com.mx
website: http://www.plata.com.mx
Aug 2002
321gold
Inc Miami USA
|
