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ORIGIN OF THE "LIBERTY" SILVER OUNCE
Don Jose Lopez Portillo became President of Mexico in 1976.
In 1981, President of Mexico Lopez Portillo ordered the creation of a
silver-ounce coin, the "Liberty Ounce", whose weight was to be 31.1
grams, the weight of a Troy ounce. This coin was to bear no engraved monetary
value.
President Lopez Portillo's intention was to provide Mexicans with a solid,
traditional monetary instrument that would enjoy an official monetary quote,
to be determined daily by Mexico's Central Bank.
Unfortunately, after a few months of its existence as money - during which
the Ounce enjoyed legal monetary quotes - the monetary quote for the
"Liberty Ounce" had to be abandoned. This became necessary, because
the Central Bank issued daily quotes of the monetary value of the Ounce,
based on the international prices of silver, and thus the monetary values of
the Ounce went up or down on a daily basis; the result was that there arose
lawsuits amongst investors, regarding the monetary value of related contracts
involving the "Liberty Ounce".
However, since its creation and up to the present, the Central Bank of
Mexico has continued to mint the Liberty Ounce, whose value fluctuates every
day; Mexicans have accumulated Liberty Ounces as savings through the years,
and they can be calculated to amount to about 25 million ounces. These ounces
remain in the possession of Mexicans, as savings which afford some
protection against the depreciation of the Mexican peso, caused by the daily
increase in the amount of Mexican monetary bills and digits.
Savers are holding on to these 25 million coins, notwithstanding the
inconvenience of owning them, which consists in the important difference
between the prices paid for them when they are purchased, and the prices that
savers receive, when they wish to sell their ounces in exchange for paper
bills or monetary digits.
THE "LIBERTY OUNCE" IN THE FUTURE
The well-intentioned monetization - the conversion into money, which
President Lopez Portillo attempted to carry out with the Liberty Ounce -
failed, because it did not take into account that the monetary value
of a metallic coin, whose value resides in its content of silver, cannot be
based on fluctuating market values of silver bullion; a monetary value must
be attributed to the coin by means of an official quote which will be higher
than the market value of silver bullion, and this quote must remain firm
against daily fluctuations in the value of silver bullion.
(A personal anecdote: in 2003, I had the honor and pleasure of meeting
with Don Jose Lopez Portillo, at that time ex-President, at a luncheon at
which he was my guest of honor; the meeting took place at the old restaurant
"Champs Élysées" on Reforma Boulevard in Mexico City. I had the
opportunity to explain to Don Jose, the reason why his project had failed so
sadly, and frustrated his noble intention to gift the Mexican Nation with a
monetized silver coin - the reason which appears in the previous paragraph of
this article. One of those present at the luncheon, Mr. Humberto Hernandez
Haddad, told me later, that when he accompanied Don Jose Lopez Portillo after
the meeting, our distinguished guest had said to him: "Where was Salinas
Price, when I attempted to monetize the Liberty Ounce?")
When the Liberty Ounce is turned into money, its monetary value will not
fall with falls in the price of silver bullion; its monetary value will only
increase in case of a rise in the price of silver bullion, sufficient to
merit a higher monetary value. A series of strong rises in the price of
silver bullion, will cause a series of higher monetary quotes for the Liberty
Ounce.
"Seigniorage" is the profit for the Central Bank, when
it assigns a monetary value to the silver coin, a monetary value which will
be superior to the silver bullion value of one ounce; in the present case, it
would amount to 20%. The seigniorage is protected against minor fluctuations
in the price of silver bullion, by a "cushion" which would consist
of an elevation of the monetary quote, which would yield a profit of 20%, to
the nearest multiple of $20 pesos.
A MAGNIFICENT GIFT THAT WOULD NOT COST ONE CENT
The monetization of the "Liberty" silver ounce - the realization
of the magnificent, humanistic measure which was proposed by none other than
the President of Mexico, Jose Lopez Portillo in 1981 - would bring with it
numberless social benefits and historic consequences for Mexico, which we
have mentioned in other places.
However, there would be one consequence of exceptional importance: millions
of Mexicans would be deeply grateful to the Mexican Congress for monetizing
the Liberty Ounce, which Mexicans have been saving since 1981, and
continue to purchase today, in spite of the fact that they are not money.
Should Congress approve the monetization of the Liberty Ounce today, its
monetary value would be $420 pesos. (At today´s peso/dollar rate of exchange,
this would amount to $22 Dollars). This value would rise with rises in the
value of silver bullion, but never diminish.
The Mexican Congress has the legal right to create this extraordinary gift
for the Mexican People, and by doing so, win the gratitude and political
support of millions of fellow-citizens.
With the following advantages:
1. The application of a monetary quote to the "Liberty" Ounces
held by the public, will not cost the Federal Budget one single cent, nor
will it cost the Central Bank any expenditure - on the contrary,
monetization means profits for the Central Bank.
2. Each and every one of the millions of "Liberty" Ounces saved
by the Mexican public since 1981 will instantly become money, for
the amount of $420 pesos, at today's conditions. No one knows the exact
number of ounces owned by the Mexican public, but a conservative estimate is
25 million.
A gift on the part of the Mexican Congress, for the Mexican people, for
25,000,000 ounces times $420 pesos each, means a gift of $10,500,000,000 (Ten
billion, five hundred million Mexican pesos).
3. There would be no inflationary consequences as a result of this move,
as would be the case with an outright gift of such an amount in paper or
digital money, because each and every one of these ounces will remain in the
savings of the population: the coins may change hands, but they will
invariably disappear into savings by the public. Thomas Gresham's famous
"Law" makes this a certainty.
We await the action of the Mexican Congress...
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