My friend Hugo Salinas Price, a tireless promoter of sound money, offers a Primer on the Mexican ‘Libertad’ Silver Ounce as a Vehicle for Savings of the Common Folk.
This is a guest post by Hugo Salinas Price. Due to its length, I will not use block quotes. My comments appear at the conclusion.
A Primer on the Mexican ‘Libertad’ Silver Ounce as a Vehicle for Savings of the Common Folk
Hugo Salinas Price
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 3 cents of its value in 1920.
Conclusions
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 than 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.
End Hugo Salinas Price – Mish Comments
That history lesson should make the problem and the solution quite obvious (and it pertains equally to gold and silver).
The problem: If the value of a metal increases above the stamped value, coins will be hoarded then melted. The same applies to printed money 100% backed by metals. People would redeem the paper for the coins and sell the coins to arbiters who would melt the coins for a profit.
Stellar Solution: Do not stamp coins or the paper with a value other than ounces.
That may sound strange, so here is another way of expressing the same thing: A dollar, a Mexican Peso, or a Euro should represent an ounce or a fraction of an ounce of silver or gold instead of foolish attempts to fix the price of gold or silver to a currency.
The latter does not work as Hugo has shown.
This brings into play discussions of dual currencies. However, as long as the price is not fixed or stamped in dollars, pesos, euros or yen, but rather as ounces or fractions of ounces the system works.
Historical minds may be interested in the slogan give us back the “Dollar of Our Daddies“.
Mike “Mish” Shedlock
Thanks for another great article! I have recently implemented an ‘operational pause’ in silver coin purchases, as I have neared ‘exhaustion’ from the last 10 years of fiscal insanity. The supposed ‘bull market’ in PM has afforded me the chance to take a break. Once I settle some debts I’ll rejoin the pursuit.
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I have a 1928 mint of this coin
Which is one of the most original designs I know of.
That is @ 15g and every time I look the value goes up, something well over 300 whatever now for the quality…not that I would sell it but it is interesting to watch how prices change… I paid 0 for it as it was washed up on a beach.
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And its politically incorrect enough to be worth looking at too. Tough… its historic… he’s an AWM before they got angry… definitely unashamedly male. Ha ha.
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Doesn’t look to me like either of them are confused about their gender.
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He’s saying ” I were out chopping trees beyond the river when there appeared a hostile tribe dressed like rainbows chanting about the weather ”
Her ” No? And what did you do? ”
Him ” Nothing. When they saw me they became confused and walked away. ”
Her ” Thank the Gods.”
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“But but but how would we fleece the common folk with inflation?” the bankers are saying.
Very beautiful coins. Not liking the 10% premium!
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Hi Mish,
The Mexican peso was named “peso” because the word “peso” means “weight”. It was a weight (peso) of silver, and there was also a weight (peso) of gold. The peso of gold was worth more than the peso of silver. Substitute the word “peso” for “ounce” and the price of the minted coin will adjust automatically to the international price of the precious metal.
If Mexico had been an English colony instead of Spanish, I assume those early Mexican coins would have been minted with the word “ounce” imprinted on them.
Love your column!
Carlos
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My favorite coin is the US Gold Double Eagle ($20) minted from 1849 to 1933. After 1927 few were put in circulation and then FDR stopped the minting of gold coinage. The more common dates can be purchased today for only a little more than the value of the pure gold in them (.9675 oz).
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Do yours have a reddish tinge to them though? Mine does, and it’s kind of weird, when I hold it next to something like a Canadian Maple Leaf, or an American Buffalo. I don’t really like these bullion coins that are less than four nines. Just my opinion.
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US and UK gold coins other than the US Gold Buffalo are 22kt gold, alloyed with copper. That’s why older US coins will have a reddish tinge.
The purest coins are Gold Maples, Buffaloes and Kangaroos, which are 24kt or 99.99% gold. Some Gold Maple are 99.999% gold.
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Silver dollars circulated up until the late 1950s in places like Denver & Wichita.
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I was collecting a set of silver dollars in the ’60s and I would get bags of them from local banks in the midwest. I wound up with a nearly complete set of all US silver dollars from 1878 to 1935. I did have to buy a few rare dates from dealers. I wish I had kept it!
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Do yours have a reddish tinge to them though? Mine does, and it’s kind of weird, when I hold it next to something like a Canadian Maple Leaf, or an American Buffalo. I don’t really like these bullion coins that are less than four nines. Just my opinion.
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This was supposed to be a reply to CJ’s comment about the double eagle above. Sorry…
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The British pound was originally worth whatever a pound of silver was worth. Seemed to work pretty well.
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There are lots of examples in history of how people adapted to price setting of metal worth. The value marked on the coin meant nothing, but traders would know the metal content of any coin, and which coins were reliable in weight and content over time. A design that was hard to imitate helped too. So certain coins would just become standard for trade at different points in time…often there were coins from all over the world being used in a country, as well as local historic ones. The token value was only worth anything to local economies under local administration, basically obliged by taxation. Even then, when the price was set off mark, coins would be dumped, or dissapear, depending on which way.
I don’t see a problem with bimetallic currency. All that happens is that gold gets used as main precise unit of account. Silver is more flexible and less accurate and just floats alongside for common use at whatever it is worth… plenty of fudge factor in real life, so who needs to calculate to ten decimal points except some highly leveraged modern financial outfit? Just because such claim accuracy doesn’t mean everyone has to accept their method or rules, the control of fiat is a distortion so obvious that you have to be trained to miss it.
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O/T
An update on Cataluña. The recent law related to Catalan self determination has been suspended by the constitutional, the Catalan police force ( loyalty mixed) ordered by Spain to confiscate all referendum material and stop acts, over 2/3 of town halls offered their support and premises for referendum ( some big cities not, Colau in Barcelona heavily criticised for not…most of those not gave reason as to protect legality of employees), now Spain prosecutors have listed mayors who help referendum as liable to detention, one party (CUP) has flatly stated their mayors will not make declaration against charges, hence open disobedience…
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Well gee if it’s illegal then it’s a nonbinding plebecite so why worry? Let them vote right?
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Well you sure got me thinking – extend sound money ideas to the “Left” in America!!
A sound solid One Once Coin, in Gold or Silver… Called.. (Wait for It!!).
THE LIBTARD!
Now we need a contest for the Artwork!!
Hmmm???
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Well you need a banner or scroll somewhere that declares ” Someone else’s money” …. a picture of social progress…. like peasants harvesting coins from trees….and of course equality means gender neutral peasants… as there are few silver people racism is avoided…. could have one side blank and polished to a mirror with the words “The best” at the top even , might encourage saving…..
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the us silver eagle says 1 oz fine silver and also one dollar. I thought they put the one dollar on it so it was considered currency and not taxable when sold.
does this mean if they take off the one dollar it can be taxed when sold?
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Every state has different laws on what sales tax is to be collected or not collected on the sale of bullion and numismatic coins. In CA the rule is sales tax is only collected on sales of numismatic coins if the value of the sale is less than $1500. Pretty strange rule, but that’s CA for you.
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paper notes could be denominated in Barrels of Crude OIL too, or one ounce of crude. Oil has more use to me than a soft metal. But soft metal, works better as money, smaller and easily transportable compared to a 55 gallon drum of oil.
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Yes, and backed by gold, as the new Chinese oil contracts priced in yuan to be traded in Shanghai will be.
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A piece of gold is going to be around a lot longer than some oil. In fact you can’t even compare the longevity of the two.
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All Canadian Maple Leaf coins – Gold, Silver, Platinum and Palladium – have notional currency values on them, as do US Eagle/Buffalo bullion coins. In practices, Maples/Eagles float with the bullion value of the metal +/- any dealer commission.
The big advantage Maples have over other bullion coins is that they’re very hard to counterfeit, given the enhanced security features introduced in recent years. SMLs are also 99.99% pure, vs. 99.9% for US Silver Eagles.
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Many currencies were based on weights: the English Pound Sterling was supposed to be literally one pound of silver, divided into 20 shillings. The German Mark was originally 1/9 of a Cologne Mark of silver, or 1/18 of a pound, later 1/20 of a pound. Germany’s Vereinstaler of 1857-1867 was set at 1/30 of a pound of silver.
What’s notable is that silver, gold, and copper coins, and paper money were NOT directly convertible. One task of bankers was to calculate the discounts between the various monies, especially easily depreciable fiat currency.
Austria had metallic Gulden (literally “golden” though they were silver) and paper Gulden. In 1806, there was a 60% discount on paper notes thanks to govt. bankruptcy following the War of the Third Coalition.
There were also gold coins called Ducats. There was no direct conversion between silver Gulden and gold Ducats — a banker had to convert them for the customer.
Most western countries adopted the gold standard in the late 19th century and devalued their silver coins to force conversion. Mexico was one of the few countries to stay on the silver standard since they had the largest silver mines in the world. Ironically, this helped the Mexican silver peso become the primary medium of exchange in China, which also kept the silver standard.
Funnily, the United States was at a disadvantage in all trade with East Asia as it had to buy Mexican pesos to trade with China. Perhaps this experience led to the U.S. setting oil prices in petrodollars, to avoid such trade disadvantages in the future.
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In 1925, $2.03 Mexican Pesos bought $1.00 Dollar….in 1925 1USD = 0.0484 oz of gold.
so 1 Mexican Peso = 0.0238 oz of gold.
in 2017 1 mexican peso = 0.0000425 oz of gold and 1 USD = 0.0007519 oz of gold
so 1 Mexican Peso worth 0.179% of 1925 Peso and 1USD = 1.554% of 1925 USD
(if my math is correct)
great article mish
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https://www.armstrongeconomics.com/international-news/mexico/from-behind-the-wall-mexico/
https://www.armstrongeconomics.com/world-news/corruption/money-or-government-which-is-the-problem/
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For all interested in this issue, I highly recommend Murray Rothbard’s “What Has the Government Done with Our Money?”.
Initially, sound money traded by weight.
Then, various sovereigns started giving local currencies their own “brand names”. Thus, an amount of silver equal to X grams became a “dollar” in the U.S., while an amount of silver equal to Y grams became a “pound sterling” in the UK.
Then, the notion of weight of sound money disappeared, and people started talking about the worth of dollars in pounds sterling.
Then, sound money disappeared.
Now, when confronted with a piece of sound money, our first reaction is how to better give it the appropriate “brand name”. But it’s just a commodity. It doesn’t need the government’s stamp on it or the government designation as being worth a certain number of pesos to be valuable.
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Fundamentally, denominated currency is a convenience with a hefty price-tag: one pays for the convenience of easy exchange through loss of value. To avoid this, one needs to employ a banker/money-changer to handle transactions in weighted money — and still pay a fee, but at least know what that cost will be ahead of time (unlike the depreciation of fiat). One must ask oneself which is more important: sound money, or convenience of transaction?
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