The right way to use silver in coinage. Part II

Wednesday, 19 September 2001

Hugo Salinas Price

In my previous article, “The Right Way to Use Silver in Coinage”, 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. (9/10 Rachel Douglas at www.lemetropolecafe.com “Will Russia Light the Fuse on the Paper H-Bomb of World Debt?”)

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.