Initiative to monetize Peso with silver in Mexico

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Here we present the full text of the initiative ‘Pro Moneda de Plata’ that several deputies of various political parties presented in the Chamber of Deputies of Mexico.

It includes the exposition of the motives, as well as the precise changes that must be made in the Law, so that the silver ounce ‘Liberty’ can circulate in parallel with the fiat weight.

The Initiative is currently under analysis in the ‘House of Representatives Finance Commission’ and has broad support from legislators from all political parties; its approval has only been stopped by the opposition of the Bank of Mexico, which adduces nonexistent risks and has systematically refused to hold an open dialogue in Congress to analyze the initiative.

Mexico is the only country in which a legislative body is insisting, and has been insisting for the past eight years, on the imperative need for real currency, which can only be recovered by introducing a silver coin into circulation in parallel with the money fiat.

The current world is going to its destruction in the convulsions of the current episode of fiat money. This period will pass. Someday, money will again be money. When the fiat money destroys itself, which will have to happen, the silver that has been put into circulation along with it will remain there, reaffirming its millenary condition as real money for the people – along with the gold.

Hugo Salinas Price, President of Asociacion Cívica Mexicana Pro Plata, AC

INITIATIVE PRESENTED BY DEPUTY JOSÉ OSCAR AGUILAR GONZÁLEZ, ON BEHALF OF DEPUTIES AND SENATORS OF DIFFERENT PARLIAMENTARY GROUPS, WHICH CONTAINS PROJECT DECREE BY WHICH ARTICLE 2 OF THE MONETARY LAW OF THE UNITED MEXICAN STATES IS ADDED, TO PROMOTE AND PROTECT POPULAR SAVINGS THROUGH THE INSTITUTIONALIZATION OF THE SILVER CURRENCY IN THE MONETARY CIRCULATION.

C. CHAIRMAN OF THE BOARD OF DIRECTORS OF THE CHAMBER OF DEPUTIES OF THE LEGISLATURE – PRESENT.

The undersigned, members of the LXI Legislature of the H. Congress of the Union, based on the provisions of articles 71, section II, of the Political Constitution of the United Mexican States; 55, section II, 62 and 63 of the Regulation for the Interior Government of the General Congress of the United Mexican States, submits for the consideration of this Honorable Assembly this Project to add, with a clause d), Article 2 of the Law Monetaria of the United Mexican States, as of the following:

EXPLANATORY MEMORANDUM

I. Premises

As of September 2008, everyone is aware of the existence of a global systemic crisis that has been transformed into a marked recession for more than 50% of nations.

To alleviate the financial crisis and the economic recession, central banks and governments have reacted by injecting more liquidity and credit, which is tantamount to intensifying the causes that caused the instability, causing the entire system greater weakness, causing a global deficit crisis and sovereign debt, and unfairly increasing penury and scarcity in the majority of the population.

These “rescues” and emergency repairs managed to extend the life of the financial system for a few more months, but they will make their collapse much more dramatic and painful. The International Monetary Fund itself has warned that “the risk of a double recession is growing” (FMI Report, June 1, 2010).

In families, price inflation, the evaporation of savings and the loss of purchasing power are causing an agonizing situation of narrowness and unrest that damages the mood and interpersonal relationships, in addition to conditioning a vicious circle of lack and scarcity.

The ultimate origin of the current economic and financial problems is that, from May 1971, real money – backed in precious metal – was substituted for fictitious money, which allows for its exorbitant issuance, since it consists only of papers and computer digits.

If you analyze in depth you discover that the distrust and turbulence in the markets, the agitation and social discouragement, the enormous financial frauds and the suffocating inflation that harms the peoples, all this has its origin in the lack of quality of money, and in the consequent possibility of creating fictitious liquidity and credit from nothing.

What we see now is that the irresponsible expansion of credit and the exaggerated creation of virtual money are reaching their limit and their inevitable end, so that the international monetary and financial system is in an extreme weakness.

In light of all the above, and with the understanding that the current situation demands creative and urgent responses, we consider it imperative and convenient to be able to offer the population a currency with real value, which is not devalued, and at the same time arouses Trust and reaffirm our national unity. This is especially important for the most needy classes, which do not have an alternative to protect themselves.

This measure is Mexico’s response to the international financial crisis. While the world powers are struggling to implement measures that require huge sums of money and will continue to worsen the global situation, Mexico proposes a simple and proven response: to provide the population with a currency of intrinsic value that is not devalued and that encourages savings irresistibly.

If the crisis was caused by an excessive expansion of debt and consumption, disregarding savings and limited and healthy credit, the solution to begin to heal economies is to stimulate savings. This is the only way, absolutely, to achieve a bottom recovery.

In this sense, the silver coin converted into money will have an irresistible appeal: spontaneously, without any need of promotion, the public will prefer to save in these currencies and obtain healthy credits using these as collateral. The saving in silver will protect families against the devaluation of the peso and the devaluation of the dollar on which the value of our peso rests.

In Mexico, access to savings instruments is limited as the level of household income decreases. The average value of a deposit account in commercial banking is only 19.4% of per capita income, one of the lowest levels in the world. The value of commercial bank deposit accounts is only 15.08% of GDP, as well as one of the lowest levels (for example, in Rwanda and Zambia, the share of GDP is 16.8% and 18.5% of GDP). GDP respectively).

For this reason, it is necessary to increase the supply of savings instruments available to the public, especially in those sectors with lower incomes. Savings instruments must fulfill two functions: maintain value and be affordable. Saving stabilizes the flow of income and, therefore, stabilizes the welfare of households.

In Mexico, 28% of the unbanked households and 40% of the banked maintain financial savings outside the formal financial system. At low income levels, 20% use non-formal savings instruments, and up to 40% of their savings on physical assets.

The savings in debt instruments of the federal government (CETESDIRECTO) does not offer protection of the value of savings, given that the rates they offer have a real return that is nil or even negative.

The monetization of silver offers the population a saving instrument with the characteristics required by a physical investment instrument with massive penetration and without transaction costs (contracts and fees for banking services):

  1. Protection against inflation and therefore protection of savings
  2. Accessible to all income levels
  3. Immediate liquidity.

If you look at the graphs of silver prices in the last 15 years, it is concluded that silver monetization yields among the population would have been the best compared to typical savings instruments such as liquid accounts, government debt and other informal mechanisms. , having a favorable impact on the welfare of the population, greater than any other public program to support the income of the lowest deciles of the population.

II. Historical background

During the Bretton Woods Monetary and Financial Conference, held in July 1944, which agreed to use the dollar as an international reserve currency and gold support, the Mexican government submitted a request for the silver It could be used as money. This motion was approved by the majority, which is why Mexico has been able to continue using money as money to this day, although in a marginal and erroneous way because it carries the circulation value recorded in the coins.

Since the founding of the Bank of Mexico in 1925, and to date, the effort to introduce silver coins into circulation has been constant.

The importance of the silver coin has been present in almost all monetary reforms and in all coinage programs, from the famous “peso 0.720” (issued since 1920) to the “Commemorative Currency of the States” (issued from 2004 to 2009).

To use silver in our currency, neither the intention nor the effort on the part of the legislators and the monetary authorities have been lacking. However, all these attempts have been futile because, sooner or later, those coins reached their “melting point”, that is, the moment when the intrinsic value of silver exceeds the recorded nominal value.

In the past, the invariable result of issues of silver coin with recorded face value has been that the seignorage begins to be negative as soon as the price of the metal exceeds the nominal value of the coin, or when the peso suffers a slip, which causes the same effect. Therefore, the Bank of Mexico has necessarily had to suspend its coinage, even against the wishes of the population, which naturally prefers silver coins to paper.

As a temporary solution, but wrong, the Bank of Mexico has included less and less silver in the alloys, thinking that this could keep the silver coin in circulation. However, the result was always the same: the silver was worth more than the recorded nominal value and its destiny was the foundry or the numismatic collections.

The best known case is the weight of silver with Law 0.720, which circulated in Mexico for 25 years; It contained 12 grams of pure silver.

During the time that 458 million pesos of silver were minted, from 1920 to 1945, the price of silver fluctuated remarkably, without its transitory losses causing any problems (when the Bank of Mexico was created in 1925, the price of silver it was $ 69.1 cents, and it dropped to $ 25.4 cents in 1932).

Never, in those 25 years, no one returned to the Bank of Mexico a single peso 0.720 as a result of a drop in the value of the silver it contained, and it continued to circulate.

The problem was represented by the rise in the price of the metal, which rose from $ 0.45 to $ 0.71 per ounce in 1945; the coin had to go out of circulation, because the value of the silver it contained exceeded the value of $ 1 peso engraved on the obverse and its coinage was then unaffordable.

With the desire to correct the limitation that brought the silver coins to the point of merger, the Executive sent, in 1979, an Initiative Law that for the first time introduced into the circulation silver coins with no recorded nominal value. The Reform stipulated that these would enjoy legal tender, a provision that is still valid today.

Concretion of this reform was the creation of the silver ounce “Libertad”, which has been minted since 1982 up to the present day.

Thanks to the first provision, these currencies have never reached the melting point: despite the devaluations, the Bank of Mexico has coined them uninterruptedly since then, they have not been melted and remain saved by the population. However, the second purpose (which were means of payment) was not fulfilled, since the lack of a stable nominal value of circulation -which in no currency can be reduced- caused losses for the saver and for the Bank of Mexico.

III. General features

The specific purpose of the Initiative is to offer the technical element so that the “Libertad” silver ounce can be fully incorporated into the monetary system, so that it serves the population as a solid saving instrument and, at the same time, as a regular means of payment.

For the silver coin to become real money, so that it enters the circulation permanently, it is essential to give it a nominal circulation value that can be traversed upwards if the price of silver rises, but keeping the last nominal value in the event that the price of silver goes down.

Both the notes and the coins we use have a printed or engraved nominal value, and that value can never be reduced, even though the international price of the material with which they are made falls. A legal provision decreeing that its nominal value should not be reduced would be redundant. But in the case of a silver coin with no engraved nominal value that has to be converted into money -which was the purpose of the 1979 Reform- it does need an express legislation so that this implicit condition in all the current notes and coins becomes explicit in the case of the silver ounce “Liberty”.

Without that irreducible nominal value, it is not possible to convert the silver coin into money, and it will remain indefinitely a commodity.

The social purpose of the Initiative is to create a shield for popular savings, granting the population an instrument that is not devalued, that does not suffer the impact of inflation, that is not subject to the errors of monetary policies or to the bank collapses.

Mexico ranks first as a global silver producer. Unfortunately, according to the Mining Chamber of Mexico, about 80% of the silver leaves the country, and is auctioned off in the New York Stock Exchange at ridiculously low prices. We have more than a decade in which international demand is not reflected in future contracts. This manipulation of the markets makes Mexican silver undervalued, the silver mining industry can not progress, or even be forced to close mines despite the certainty that there is silver in them.

A direct effect of the Initiative is that the silver will be given an added value, creating a new market and making the silver stay in our country for the benefit of the Mexicans.

The Project will favorably impact the mining industry and will result in the creation of jobs. Of the 32 States of the Republic, 24 are mining States. The Mining Chamber of Mexico estimates that, if the Silver Monetization Project is approved, new mines will be activated in the short term, which could generate around 2,500 new jobs annually, and calculates that the proven and probable silver reserves, close to 1,800 million ounces, could support popular demand.

Therefore, the National Conference of Governors (CONAGO) has unanimously declared on two occasions that the silver coin be introduced into circulation, so as to stimulate popular savings and promote regional development.

Additionally, the monetization of the silver contributes to the banking process, since, in addition to being able to digitally denominate the silver accounts in custody, the banking system and the public will be able to benefit from the possibility of using the deposited currencies, as collateral for the granting of low interest loans, promoting the development of multiple productive projects. This credit is healthier than the credit created from nothing, to be supported by previous savings.

As for the fluctuations in the value of silver, the transitory drops in the international price of silver would not cause losses for either the Bank of Mexico or the holder of the ounces, precisely thanks to the nominal value, as of 1920 In 1945, no holder of the 0.720 peso nor the Bank of Mexico suffered losses, and no one returned any currency in the event of occasional declines in the price of the metal.

For its part, increases in the nominal value do not imply any subsidy by the Treasury, since they obey the rise in market prices, and it is the saver who pays, at the time of buying the ounces, the price of the metal, of coinage and seigniorage.

It should also be emphasized that this measure, far from affecting the management of monetary policy, rather helps to set inflation in a way contrary to the monetary restriction which, by requiring increases in interest rates, affects the productive system. Introducing silver coins into the circulation has the same effect of containing inflation, but without damaging production.

Finally, it should be noted that the substitution of monetary base is minimal, since the increase of money in circulation derived from this legislation is practically zero, specifically 0.23% of the M1 corresponding to the 22 million ounces that are already in the hands of the public, and 0.08% corresponding to the new coins that are minted annually. In comparison, the annual increase of M1 corresponding to fiat pesos is close to 12% per year, which does cause inflation, causing great damage to the population.

It should be noted that always positive seigniorage will be a continuous source of income for various social programs. Today, the Bank of Mexico does not receive any profit, since it sells the Libertad ounces as merchandise, and the profits for commercialization are taken by the private banks, which add a commission to the sale and discount an amount in the repurchase.

With the approval of this Initiative, when the silver ounce becomes money with an official value assigned by the Bank of Mexico, the commercial banks will no longer be able to carry out this practice, and it will be the Bank of Mexico that obtains a utility for seigniorage. .

Currently, the Bank of Mexico obtains a very large seigniorage of more than 99% on the bills it issues, and in the case of the Libertad ounce it will be at least 10%. However, given that it is not expected to substitute any amount of the regular banknotes and coins that the Bank of Mexico is currently issuing – the Libertad ounce will enter in parallel and in a complementary manner – the seignorage that the Bank of Mexico currently receives for notes and coins regular will remain the same and, additionally, that of the Libertad ounces will be added.

It should be noted that, once the nominal value of circulation of the Libertad ounce has been established, the Bank of Mexico will benefit from the transitory drops in the international price of silver, since at that time the seignorage will increase in its favor and the costs of coinage.

IV. Description of the Initiative

The amendment to the Monetary Law that is proposed, by virtue of the present, consists of the following:

a)         Article 2 is added with a subparagraph d), with the objective of including the silver ounce ‘Libertad’ in the currency category, as well as establishing the method for the Bank of Mexico to initially determine its nominal value , and may adjust it upwards when an increase in the international value of silver substantially reduces or eliminates the coverage of its coinage and seigniorage costs.

b)         To prevent speculative movements from forcing Banco de México to attribute a high nominal value to an ounce of silver, an exception provision is included that allows the Bank to maintain the last nominal value for a period of six months, until it is verified that the prices of silver return to the market.

c)          The same paragraph provides that the nominal circulation value is an amount adjustable to multiples of five pesos, in order to have a figure that is easy to remember for the population and more convenient in accounting terms. Additionally, this upward adjustment will serve as a margin to maintain the official equivalence without change when the price of silver rises only marginally.

As a result of the foregoing, for the worthy conduct of you, C. Chairman, we submit to the consideration of the Mexican Congress the following:

INITIATIVE WITH PROJECT OF DECREE BY WHICH ARTICLE 2 OF THE MONETARY LAW OF THE UNITED MEXICAN STATES IS ADDED, TO INSTITUCIONALIZE THE SILVER CURRENCY IN THE MONETARY CIRCULATION OF PERMANENT FORM.

ARTICLE .- Article 2 of the Monetary Law of the United Mexican States is added with a subparagraph d) to read as follows:

Article 2 The only circulating coins will be:

to) […]

b) […]

c) […]

d) The silver ounce ‘Libertad’ which will be legal tender at its nominal value in pesos.

The Bank of Mexico is solely responsible for determining and modifying the nominal value of the silver ounce ‘Libertad’. The initial nominal value of the ‘Libertad’ silver ounce will be determined by the sum of the following factors: the current international price of the ounce of silver, expressed in pesos, the cost of minting and a seigniorage not greater than 10 percent calculated about the total cost of the currency; the result of this sum shall be adjusted to the immediate higher multiple of five pesos.

Banco de México will determine an increase to the nominal value of the ounce of silver ‘Libertad’, through the procedure mentioned in the second paragraph of this subsection, each time the total sum of the factors is greater than the current nominal value.

The nominal value must be published every day in the Official Gazette of the Federation and, once determined, it can not be reduced in any case.

In the event of an extraordinary increase in the price of silver, Banco de México may maintain the current nominal value, without taking into account this increase, for a maximum period of six months. At the end of that period, the new nominal value must be determined, by the procedure mentioned in the second paragraph of this subsection, if the total sum of the factors is greater than the current nominal value.

The Bank of Mexico will mint as many “Libertad” ounces as are required to avoid that the scarcity of the same originates speculative overpricing above the nominal value established by the Bank of Mexico.

TRANSIENT

Sole .- The present decree will come into force on the day following its publication in the Official Gazette of the Federation.

Impending US dollar crisis – Peter Schiff

The global gold fever, led by Russia and China which is diversifying its foreign exchange reserves, is the right thing to do as the US dollar’s value is being diminished, says CEO of Euro Pacific Capital Peter Schiff.

Other central banks are recognizing is that they need to increase their gold reserves because of the impending dollar crisis. Ever since the US led the world off the gold standard, the world has been on a dollar standard. That was fine when the dollar was backed by gold but now the dollar is backed by nothing.

Up until now, that hasn’t been a problem because people have still perceived the value of the dollar but I think that’s going to change,” he added.

The next recession of the US economy will occur when “the Fed goes back to zero and we launch QE4,” according to the expert. “The dollar’s role as a reserve currency will be questioned then,” Schiff said, noting that the central banks will need an alternative. “The only viable alternative to back up their currencies is real money which is gold.”

While other countries back their currencies with dollars, the US can’t do the same, and the problem is that “we [the United States – Ed.] don’t have enough gold relative to all the currency that we’ve been creating and are going to be creating.”

Schiff suggested that no country likes that the “US uses the dollar as a weapon.” So, to move away from the greenback they increase their gold reserves now while “gold is still cheap because when the dollar really starts to tank the price of gold will soar.”

With its actions Washington is pushing countries toward accumulating gold, Schiff said, explaining that this is in fact what the US is “doing now with China with this trade war.”

Source: schiffradio, elhorizonte, oroyfinanzas

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