A translation of a report on a debate in the Mexican Congress,
published by Economist Guillermo Barba on his website:
http://pilotzinoticias.com/guillermo-barba/onza-plata-ahorro-los-mexicanos
On September 13th I participated in the Forum for "The Promotion of
Savings by Mexicans" organized by the group "Legislators in Favor
of Savings by the People" who are members of the Chamber of Deputies
(i.e. "Congressmen") in the Mexican Federal Congress; the group is
led by Congressman Francisco Javier Pinto. The fact that this meeting took
place at the seat of one the Legislative Houses of the Mexican Republic is
extraordinary news, because there are few things so important for the
development of the national economy and the economy of Mexican families, as
savings.
According to the poll taken by the "National Poll Regarding Financial
Participation in 2015", 32% of the population saves informally, that is
to say, by "stuffing money under the mattress" and other invented
measures, and only 15% saves in a formal manner, for example, by depositing
money in a bank account, or by purchasing Government Treasury Certificates
("CETES") or by voluntary contributions to their official
retirement account ("AFORES").
These options are preferable than just saving pesos, though they are not
winners, nor do they allow Mexicans to retain the purchasing power of their
savings: they are only alternatives that provide less loss of
purchasing power.
It is just for this reason that it is imperative to go further. At the
Forum we insisted on the proposal to give a stable value to the Mexican
silver coin. I'll explain in few words.
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.
Today, for example, at the present rate of exchange and the present price
of silver, the Mexican silver ounce is worth $320 pesos. Now suppose the
Proposal requires an overprice of 10%. In that case, Banxico's monetary quote
for the "Libertad" silver ounce would be for $352 pesos.
If the price of silver should plunge tomorrow to $250 pesos to the ounce,
for example, the Mexican central bank would keep the monetary value of the
"Libertad" ounce stable. In that way, the saver would not loose and
the silver coin would remain "in circulation". (Actually, the
public will scarcely use the silver "Libertad" ounce as money, due
to Gresham's Law; practically all ounces will be held as savings for the long
term or for emergencies, and the public will choose to keep on spending fiat
money for daily needs, because it is money of no quality at all).
As a matter of fact, all the coins we carry around in our pockets are also
worth less as plain metal, than their stamped nominal monetary value, and
when their metal is worth more than the stamped value on the coins, they go
out of circulation and are replaced by cheaper coins. (Why do you think we no
longer see coins for 5, 10 or 20 centavos (cents) any more, and you hardly
ever see the yellow 50 centavo coins?).
On the other hand, 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 great peace of mind for the investor, great or small, will encourage
savings and financial responsibility better than any other policy of public
stimulus.
This is not the first time that this proposal comes before
the Mexican Congress, but we pray that this time it becomes a reality. We
hope so. It's for Mexico, the world's Número Uno producer of silver!
