Big Trouble For The Silver Market If Mexico Monetizes Its Silver Libertad Coin


by Steve St. Angelo, SRSrocco:

Recently, there was a debate in the Mexican Congress on the proposal to monetize the Silver Libertad Coin.  The debate took place during a forum for “The Promotion of Savings for Mexicans.”  If Mexico decided to monetize its Silver Libertad Coin, it could have a severe impact on the silver market and price.

How much of an impact would the monetization of the Mexican Silver Libertad have on the market?   There could be serious ramifications if we consider the vast amount of silver consumed by the minting of Mexican silver coins in the past.  Before I get into that data, let’s look at the following text from the article, The Mexican Congress Debates the Monetization of the ‘Libertad’ Silver Ounce, on Hugo Salinas Price’s site;

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.

…. 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 important feature in the proposal to monetize the Silver Libertad was that the Central Bank of Mexico would adjust the value of the coin based on the price of silver, rather than striking a permanent numerical value on the face of the coin.  By basing the value of the Silver Libertad on the market value of silver, this would protect the Mexican citizen from the ongoing devaluation of the Peso.

For example, the Mexican Peso has devalued 93{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} versus the U.S. Dollar since the mid-1970’s:

The Mexcian Peso was valued at $0.8006 to the U.S. Dollar in the mid-1970’s but is now trading at $0.0570.  Thus, the Mexican Peso has lost 93{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} of its value in just the past 40+ years.  We can see the devaluation of the Mexican currency much better by looking at the relationship between the amount of silver contained in each coin versus the number of Pesos struck on the face of the coin.

The following table came from the site:

The Peso minted between 1869-1913, contained 0.786 (oz) of silver in the one-ounce coin.  The value struck on the front of the coin was 1-Peso.  However, if you look down to 1950, the  1-Peso coin only had 0.1286 (oz) worth of silver in it.  The amount of silver contained in the 1-Peso coin was six times less in 1950 than compared to 1913.

Now, by examining the amount of silver in the 1913 1-Peso of 0.786 (oz) versus the 100-Peso (1977-1979) of 0.6426 (oz), we can see that there was only 0.00642 (oz) of silver backing 1-Peso in the late 1970’s than the 0.786 (oz) of silver backing the 1-Peso in 1913.  Please understand that the Central Bank of Mexico stamped 100-Peso on the face of the coin with only 0.6426 (oz) of silver contained in it.

Thus, the Mexican Peso lost 99.2{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} of its silver content between 1913 and 1977.

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