A few articles in one today. But all related to the topic of how a silver coin could be put back into circulation.
First up, see what happened to Mexican silver coins that had a currency value that quickly was overtaken by depreciation of the peso. How the coins were melted into bullion for sale in the metals market.
Hugo Salinas Price goes on to explain how Mexico can have its own silver currency to shield the savings of its people only by quoting the coin’s peso-exchange value on a daily basis and pledging never to reduce that value.
Then next up you’ll see how his proposal has (although it’s not the first time) made it’s way into consideration of the Mexican parliament.
Then at the conclusion of that article we also share some thoughts from Steve St Angelo. He calculates just how big an impact on the silver market it would have if a silver coin were actually put into circulation in Mexico. Much bigger than you might have thought…
A Primer on the Mexican ‘Libertad’ Silver Ounce as a Vehicle for Savings of the Common Folk
Originally posted at: plata.com.mx
Who created the Mexican silver peso known as the “0.720 Peso”? President of Mexico Venustiano Carranza.
When did minting of this coin begin? In 1920.
Why was it known as the “0.720 Peso”? Because its silver content was 72% of its weight.
What was the silver content of the “0.720 Peso”? The pure silver content of the “0.720 Peso” was 12 grams.
What was the value of the silver in the “0.720 Peso” in 1920? In 1920, 12 grams of silver were worth 52 Mexican cents.
For how many years was the “0.720 Peso” in circulation? It circulated for 25 years, until 1945.
During those 25 years, was the silver in the “0.720 Peso” ever worth less than 52 centavos? Yes; in 1931, 12 grams of silver were worth only 31 centavos, but the public using the coin took no notice of this fact.
Why did the “0.720 Peso” go out of circulation in 1945? It went out of circulation because after World War II, the international price of silver rose and thus the silver in the “0.720 Peso” was worth more than one Peso. Minting more silver Pesos became a loss-making business for the Mexican Mint, so minting ceased.
What became of the “0.720 Peso” coins when they went out of circulation? Most of the coins were sent to a refinery so that their silver could be sold at a profit on the international markets, as happened to the US silver coinage in the 1960’s, but some were saved by Mexican savers, and can still be purchased in downtown Mexico City.
Were other silver Peso coins minted, after the “0.720 Peso” went out of circulation? Yes, three different silver one-Peso coins were offered to the public after 1945: In 1947-1949, a silver one-Peso coin was minted with 7 grams of silver; in 1950-1954, a silver one-Peso coin was minted with 4 grams of silver; in 1957-1967, the last one-Peso coin with silver was minted, and it contained only 1.6 grams of silver.
What happened to all these coins? They all suffered the same fate as the “0.720 Peso”: they were sent to the refinery, because the value of the silver they contained became worth more than one Peso.
What took the place of the “0.720 Peso” when it went out of circulation? It was replaced with a paper “One Peso” note, whose cost of production was next to nothing. As inflation of the stock of money in circulation advanced, coins of One Peso became quite unimportant, in spite of the inclusion of some silver in the Peso coins of the Fifties and Sixties.
Paper money record: In 1925, $2.03 Mexican Pesos bought $1.00 Dollar. In 2017, it costs $17,600 Pesos to purchase $1.00 Dollar. (Three zeros were wiped off the Peso in 1993, in a cosmetic measure to make it look better; thus the “Official Exchange Rate” is $17.60 “new” Pesos to $1.00 Dollar at this writing.)
This does not take into account the depreciation of the US Dollar itself, which is now worth something like 3cents of its value in 1920.
1.- It is impossible to mint silver coins for stable popular savings, if they bear a stamped monetary value, because the value of silver fluctuates with a tendency to rise, and thus any stamped value on a silver coin will always be surpassed by the rising value of the silver in the coin.
2.- Mexico can recover silver coinage as a vehicle for popular savings, if the silver coin does not have a stamped value, but rather an official quoted value which can be raised as rises in the value of silver take place.
3.- The “Libertad” pure silver one-ounce coin is already Legal Tender in Mexico. Its value fluctuates with a tendency to rise with the silver market. If it were given an official monetary quote, it would turn into an ideal vehicle for popular savings and would never go out of circulation. (More that 60% of the Mexican population have no savings for their retirement.)
4.- A silver coin with a quoted official monetary value would be a great vehicle for popular savings, but due to the fact that its monetary value would always be for a larger amount of Pesos, and never for a lesser amount, the “Libertad” pure silver one-ounce coin would never be able to substitute the present monetary system of Mexico, which will endure such as it is today.
Next you’ll see how Hugo Salinas Price’s idea has been recently debated in the Mexican Congress…
The Mexican Congress Debates the Monetization of the ‘Libertad’ Silver Ounce
Originally posted at: plata.com.mx
A translation of a report on a debate in the Mexican Congress, published by Economist Guillermo Barba on his website: http://pilotzinoticias.com/guillermo-barba/onza-plata-ahorro-los-mexicanos
On September 13th I participated in the Forum for “The Promotion of Savings by Mexicans” organized by the group “Legislators in Favor of Savings by the People” who are members of the Chamber of Deputies (i.e. “Congressmen”) in the Mexican Federal Congress; the group is led by Congressman Francisco Javier Pinto. The fact that this meeting took place at the seat of one the Legislative Houses of the Mexican Republic is extraordinary news, because there are few things so important for the development of the national economy and the economy of Mexican families, as savings.
According to the poll taken by the “National Poll Regarding Financial Participation in 2015”, 32% of the population saves informally, that is to say, by “stuffing money under the mattress” and other invented measures, and only 15% saves in a formal manner, for example, by depositing money in a bank account, or by purchasing Government Treasury Certificates (“CETES”) or by voluntary contributions to their official retirement account (“AFORES”).
These options are preferable than just saving pesos, though they are not winners, nor do they allow Mexicans to retain the purchasing power of their savings: they are only alternatives that provide less loss of purchasing power.
It is just for this reason that it is imperative to go further. At the Forum we insisted on the proposal to give a stable value to the Mexican silver coin. I’ll explain in few words.
The central feature of the proposal is that the Central Bank of Mexico (Banxico) shall determine a value in pesos for the “Libertad” silver ounce; and that this value shall be slightly higher (by a percentage that would be defined in the corresponding Law) than the price of silver in the international market, in order to provide Banxico with an assured profit in minting and placing these coins in monetary circulation.
Today, for example, at the present rate of exchange and the present price of silver, the Mexican silver ounce is worth $320 pesos. Now suppose the Proposal requires an overprice of 10%. In that case, Banxico’s monetary quote for the “Libertad” silver ounce would be for $352 pesos.
If the price of silver should plunge tomorrow to $250 pesos to the ounce, for example, the Mexican central bank would keep the monetary value of the “Libertad” ounce stable. In that way, the saver would not loose and the silver coin would remain “in circulation”. (Actually, the public will scarcely use the silver “Libertad” ounce as money, due to Gresham’s Law; practically all ounces will be held as savings for the long term or for emergencies, and the public will choose to keep on spending fiat money for daily needs, because it is money of no quality at all).
As a matter of fact, all the coins we carry around in our pockets are also worth less as plain metal, than their stamped nominal monetary value, and when their metal is worth more than the stamped value on the coins, they go out of circulation and are replaced by cheaper coins. (Why do you think we no longer see coins for 5, 10 or 20 centavos (cents) any more, and you hardly ever see the yellow 50 centavo coins?).
On the other hand, if the price of silver should shoot upward, Banxico would have to issue new, higher quotes for the “Libertad” silver ounce (according to the formula to be established by Law). In this way, again, the coin will remain “in circulation”, and since it has no nominal price stamped on it, it will avoid ending up – like all the old silver coins that had stamped values – at the refineries.
Most of those old silver coins, once their content was worth more than the peso stamped value on their faces, ended up in the refineries. The holders of the coins sold their coins at a profit, for their silver content.
This won’t happen with the “Libertad” silver ounce, whose value will be adjusted upward, and benefit the saver, who will thus retain his purchasing power no matter what may happen with inflation. Thanks to owning silver “Libertad” ounces, the public’s savings will float on the ocean of currency through the years.
The great peace of mind for the investor, great or small, will encourage savings and financial responsibility better than any other policy of public stimulus.
This is not the first time that this proposal comes before the Mexican Congress, but we pray that this time it becomes a reality. We hope so. It’s for Mexico, the world’s Número Uno producer of silver!
If Mexico Monetises Its Silver Libertad Coin – What Impact Would this Have on the Silver Market?
Finally some really interesting analysis from Steve St Angelo at srsroccoreport.com. He looks back at the volume of silver coins the Mexican Mint used to produce mid twentieth century. And the massive impact this would have on the silver market if they were to return to a similar volume were Mexico to monetise its silver libertad coin.[T]he Mint of Mexico produced 800,000 oz of Silver Libertads versus 40.3 Moz of Silver Eagles fabricated by the U.S. Mint last year. The irony about those two figures is that the U.S. had to import silver to produce the 40.3 Moz of Silver Eagles as its domestic mine supply was only 35 Moz. On the other hand, Mexico produced 186 Moz of silver in 2016, more than five times that of the United States.
Something is seriously wrong here. Why is Mexico exporting all of its silver for worthless fiat money if its citizens could acquire domestically minted Silver Libertads to protect their wealth in the future? I would imagine the U.S. government has something to do with controlling Mexican officials in keeping their citizens entirely in the dark about silver as MONEY and a STORE OF VALUE.
If the proposal to monetize the Silver Libertad gains traction in Mexico, the silver market would be in serious trouble. Here’s why. Currently, Mexico produces about 186 Moz of silver:
If the Silver Libertad was monetized and 30% of Mexico’s silver production was used to produce these coins, as it was in 1943, it would consume nearly 56 Moz of the country’s domestic mine supply. Moreover, with a population of 130 million in Mexico, 56 Moz of Silver Libertads would amount to less than a third of an ounce of silver for each citizen.
While it is an excellent idea that the Silver Libertad is monetized as protection for Mexican citizens against the ongoing devaluation of the Peso, it will be an uphill battle in state politics. Unfortunately, the world depends on a lot of silver coming from Mexican mines to supply the global jewelry, electronics and investment industries. If its citizens consumed a significant portion of Mexico’s silver production in acquiring vast numbers of Silver Libertads, it could severely impact the silver market and price.
It will be interesting to see how far this proposal to monetize the Silver Libertad goes in the Mexican government.
You may also be interested in: A Short History of International Currencies: Part 1 >>