The director of Fideicomiso de Fomento Minero (“The Trust for Encouraging Mining”) Norberto Roque Díaz de León, told “El Financiero” newspaper on August 20 that it would be a good idea to use silver in Mexican coinage, in order to stimulate demand for that metal, and thus aid Mexican silver mining, which is having a hard time due to the low price of silver.
We think it’s great that someone is thinking about using silver for minting coins. It certainly is the best way to help the Mexican silver mining industry.
However, not just any way of using silver in minting coins is as good as any other. We must foster minting of silver coins, yes, but in the most convenient way.
The simplest way to use silver, is as a “decoration”; in other words, just use a little bit of silver in each coin. Since Mexicans love silver, they will immediately put away any coin that contains the slightest bit of it, just because it is shiny silver.
Minting that kind of coins would require a great deal of silver, and it would certainly please the miners. However, this “decorative” use of silver is not what the people of Mexico really need. Here are some of the reasons:
1. These coins do not offer any protection against inflation. A decorative silver type of coin, with a legal tender value engraved upon it, would not rise in price – it would not “float” like the dollar does every day – as the rate of exchange fluctuates. If the coin says “$100 pesos” for example, it will be worth no more than $100 pesos even if the value of the peso plummets. The coins would be saved because of their attractive looks, but they would provide no protection for savers.
2. For the miners, minting these coins provides only temporary relief. As soon as the price of silver rises enough, these coins will all head for the refinery and their silver will be sold on the market. Thus, that silver would return to depress the price of silver. So, what was all the effort for, after all?
3. A coin minted with a little bit of silver is pretty, but it is still junk coinage, since the silver would only be for appearances’ sake, and would give the coin no real value.
The right way to use silver, in order to give some relief to silver miners today and tomorrow, is to mint coins like the silver one ounce “Libertad”, which is already being minted and which is a beautiful coin. This coin has no legal tender value, only intrinsic value.
1. This coin will never go to the refinery. What the public saves, will remain with the public. The refinery is not its fate, because its value fluctuates with the value of the peso, and with the value of silver itself. Its silver will not return, melted down, to depress the price of silver, to the detriment of the miners.
2. Since this coin bears no engraved legal tender value, its price moves, just like the dollar’s price moves every day. All the saver has to do is watch T.V. to find out every day just what his silver savings are worth in pesos. It’s a great vehicle for savings. Silver goes up and down, like all things, but for the time being it is at historically very low prices. It can’t go down too much more, and on the other hand it may rise in price in the future, to the savers’ benefit. And, unlike paper money, silver will always be worth something.
3. This lovely coin, the “Libertad” ounce, only costs $55 pesos! ($6.04 US at Elektra stores, as of this date) Why, a haircut costs more! Silver is incredibly cheap. This is a good time to put silver within the reach of every Mexican, in the shape of a coin of eternal value.
We’re very pleased that there is interest in using silver in our coinage. But, let us promote silver use in coinage, in the way that is most advantageous to Mexico. We have to hurry up and offer Mexicans a money that is of better quality than the dollar, in order to hold back dollarization. We already have that higher quality money, it’s the silver ounce “Libertad” coin. We must promote its minting, so that our Mexican Mint can spread this coin all over Mexico. That is the most noble patriotic effort imaginable.
The Mexican Congress, the Bank of Mexico, the President of Mexico and his Cabinet, and all the organizations of private enterprise should work to convince the Mexican people to buy this coin, which does offer protection from inflation. They must see to it that the Mint has sufficient silver coin on hand. They must push the sale of this coin, so that the Bank of Mexico will have to purchase large amounts of silver from our miners, and give them a much needed and well-deserved break. With silver used in minting the “Libertad”, we are all winners.
That’s the right way to use silver in coinage, for the benefit of Mexico.
In [in the above], we said that we should place as much silver as possible in the hands of the Mexican people, in the form of the one ounce pure silver “Libertad” coins with no face value. We should do this immediately, while the price of silver is ridiculously cheap. This would help the mining industry find an outlet for its silver, and by reducing the quantity available for export, it would help raise the price of silver, something that silver mining needs very badly.
Now, however, we have some surprising news regarding gold and silver, coming from Russia of all places. (Will Russia Light the Fuse on the Paper H-Bomb of World Debt?, Rachel Douglas, April 10, 2001)
So far as we can tell, the Russians have plans similar to one we have been proposing, with an important difference that is really an eye-opener: full legal tender status. To align our plan with the Russian plans, we only have to take one very simple step:
The proper authorities must declare that the one ounce pure silver “Libertad” coin is full legal tender money. At what price can the ounce be legally tendered in payment? At a price that is to be determined daily by the Bank of Mexico, based on 1. The international price of silver 2. The peso/dollar exchange rate 3. The needs of the Bank and of the retail distribution network, in order to cover costs of minting and distribution.
The paper peso is to continue as Mexican money. We only add another coin to our monetary system: the one ounce pure silver “Libertad” coin.
The public will scramble to get this coin, and in practically unlimited quantities; the Bank of Mexico would have to decide how much silver it wants to put in the public’s hands. We say this with confidence, for if the “Libertad” is attractive without being FULL legal tender, since its use as legal tender is at present limited to contracts which specify payment in silver, its attraction once given full legal tender status, with a known daily value, would be enormous.
The Bank of Mexico might immediately purchase say, 300 tonnes of silver – some 10 million ounces – from Mexican mining companies. This silver, once coined, could easily be placed in the hands of Mexicans.
Such an operation would begin to improve the situation of Mexican mining, and with further purchases, we think that the international price of silver would begin to rise substantially, since Mexico is the Number One producer of silver in the world.
The Bank of Mexico would have given the people of Mexico a much appreciated gift: a haven of safety for savings, a silver coin that can appreciate in price and that is accepted the world over, and that at the same time can be used directly for any purchase, if the holder wants to buy something with it.
This is the way to escape from “dollarization”, to which we have had no alternative up to now. A very hard currency, which we can produce ourselves – not supplied by a foreign country – by simply buying more silver from our miners, who will be more than pleased to supply it. The Russians aim at the same objective.
The fixing of the price of this coin every day, would represent no problem, for we have plenty of experience with determining the price of the dollar in pesos every day, and through it, the prices of all currencies in the world. There is nothing new in this, for the Bank of Mexico.
If the price fixed under-valued the silver coin, it would not circulate and savers would hoard it, knowing that it is a currency superior in quality to the paper peso. (Gresham’s Law). It is hard to visualize such action on the part of the Bank of Mexico, as it would not produce any advantage.
If the price were over-valued, the public would acquire it at any rate, as experience has shown; when coins with only a very small amount of silver were produced, they immediately disappeared into private hoards. Only an extreme over-valuation might be able to recover some amount of silver from private hands. We must note that the over-valuation of this coin, would restrict its ability to protect savers from inflation, so that is something that should be avoided at all costs.
This plan has the advantage of putting pure silver in the hands of Mexicans, at prices close to its value in international markets, with the additional advantage that the “Libertad” would enjoy full legal tender status. But the value of the coin would fluctuate with regard to the paper peso and the dollar, at prices set daily by the Bank of Mexico. This gives the “Libertad” an irresistible attraction.
We can’t find any problem with this Russian plan – if we understand it correctly. I think it should be studied, and unless there is some problem we have not perceived, it should be acted upon immediately, especially since the dollar is poised for a fall in the confidence of international markets, due to the prevalent economic disorder in the U.S., which is now aggravated by the imperative fiscal needs of war.
After having suffered so much under Communism, Russia is headed in the right direction. They are showing us the way to follow in the new and necessary monetary arrangements that the world desperately needs.
Written by Hugo Salinas Price for In This Age of Plenty ~ August – September 2001