-- Posted 27 October, 2006 | |
A presentation to the monthly meeting of the “Círculo de Estudios México” (“Circle for Mexican Studies”) on October 2, 2006, chaired by its founder, former President Miguel de la Madrid Hurtado (1982-1988)
1. We are not the first to insist upon the monetization of the silver ounce. President José López Portillo intended to do this, in 1979; he wished to turn the silver ounce into money for an amount equivalent to its quote by the Banco de México (the Mexican Central Bank) and with that in mind he drew up the corresponding legislation which he proposed and which Congress approved in December 1979. During the space of two years, the population attempted to use this monetized silver coin as money in transactions, but the effort had to be suspended in December of 1981 for the simple reason that the legislation was defective.
2. According to the legislation of López Portillo, the silver ounce rose in monetary value when the price of silver rose and it received a correspondingly higher quote from the Central Bank. This condition, that the quoted value of the silver ounce should rise when the price of silver rises, is incorporated in the new legislation proposed by the Mexican Civic Association Pro Silver, and simply takes up what was previously proposed by the López Portillo legislation. We are proposing nothing new here.
3. The error that determined the failure of the attempt on the part of president López Portillo to monetize the silver ounce was that any coin that is to be used as money, must have a nominal value which cannot be reduced. All the coins we use, as well as all the bills we use, bear either an engraved or a printed value, and this value can never be reduced. A legal stipulation in the sense that the value cannot be reduced would be, in the case of these coins and bills, utterly redundant; the Law does not require this stipulation because it is impossible to reduce the engraved or printed value of coins and bills. However, in the case of a coin with no nominal engraved value which is to be turned into money – as was the intention of López Portillo – we must have explicit legislation, so that this condition which is implicit in our present coins and bills, may be stated explicitly in the case of the “Libertad” silver ounce. This explicit statement in the legislation is indispensable in order to fulfill the desire of López Portillo to turn the silver ounce into money. It was the absence of this stipulation which led to the failure of López Portillo’s effort. That the quote of the silver coin shall not be reduced in value is a principle which already operates, necessarily, with all coins and bills which we use as money. There is nothing new in the principle. The only novelty in our project is that, in the case of the monetization of the “Libertad” silver ounce, that nominal value shall be virtually engraved and not physically engraved as is the case at present with our copper-nickel coins.
4. With regard to the re-valuation of silver on the part of the Central Bank, the Central Bank has in fact been re-valuing silver from the period 1947 to 1967 and beyond. If we look at the attached graph, we shall see that it is evident that each new minting of peso coins after the one peso 0.720 coin (1920-1945) incorporated a re-valuation of silver, which took the form of a reduction in the quantity of silver in the Mexican one peso coin. This entailed an expensive process of retiring all the previous coinage from circulation, which was demonetized because it had reached the “melting point”, and of minting new pesos which incorporated the new, higher value of silver. The monetization of the silver ounce which is proposed by the Mexican Civic Association Pro Silver requires a re-valuation of silver when its price rises. The principle is not new, but up to this date, it has required new coinage. With the proposed legislation, no new coinage will be required. The same coin, revalued from time to time, with a quoted nominal value which cannot be reduced, will remain in circulation permanently.
5. A silver coin in permanent circulation as money, whose value rises with the price of the silver it contains, is of incalculable political and social value. Such a coin becomes a permanent institution, tangible and visible, which gives continuity and solidity to the sense of nationality. By avoiding the re-minting of coinage, which the previous use of silver in our coins required - and which implied the demonetization of national savings every time this was carried out - the same coin, the “Libertad” ounce, with a growing value, becomes an ideal vehicle for savings; a vehicle immune to monetary inflation and to the financial woes that may overtake the nation.
6. This coin favors savings in the most effective way possible, because it offers the saver something that is worth saving. This form of saving does not require high interest rates. Whatever silver is minted will go to savings as long as money in circulation continues to grow. Only when money in circulation stops growing – a hypothetical situation far over the horizon at present – would these coins emerge from savings to circulate alongside paper money in commercial operations.
7. Those saving the silver ounce turned into money, will immediately have the option of financing their projects with their saved silver. Silver in custody accounts will immediately and unquestionably be accepted as prime quality collateral by the banking system for loans in pesos at the lowest possible rates – similar, perhaps, to the rates which prevail on government securities.
8. As we have shown, the project for the monetization of the “Libertad” silver ounce includes nothing new in principle and it is actually only an adaptation to modern conditions of principles which have always operated with regard to coinage: the re-valuation of the silver in the coin and the stability of the nominal, “quoted” value, by means of a quote which cannot be reduced, which thus gives the coin a virtual “engraved” value, instead of the physically engraved or printed value which is displayed by our present coins and bills.
Hugo Salinas Price, President
Asociación Cívica Mexicana Pro Plata, A.C.
-- Posted 27 October, 2006 | |