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A long monetary tradition

For centuries, Mexico’s silver coinage has been world famous, and in our
modern history, from the foundation of the Central Bank (“Banco de México”)
in 1925 to the present, there has been a constant effort to keep silver
coinage in circulation.

The importance of the silver coin has been recognized in almost all monetary
reforms and in all minting programs - from the peso of 1920 with a fineness
of .720, to the present “States of Mexico Commemorative Coins” of 2005,
with 1/2 Troy ounce of pure silver and face value of $100 pesos.

There has been no lack of will or effort on the part of legislators and
monetary authorities regarding the use of silver in our coinage. However,
all efforts have been frustrated because, sooner or later, the newly designed
coinage reached its “point of fusion”, which is the instant when the peso
value of the silver contained in the coins, exceeds the nominal legal tender
value in pesos which is engraved upon the coins.

As a transitory but mistaken solution to this problem, each new coinage of


silver was designed with a lower silver content, with the idea that by this
means the coins would remain in circulation. However, the outcome has
always been the same: the price of silver in pesos rose and the coinage
either went to the smelter or to numismatic collections.

The .720 Fine peso coin (12 grammes of pure silver)

Our most well-known silver coin is the silver peso, with fineness of .720
and a pure silver content of 12 grammes, which was in use for 25 years,
from 1920 to 1945.

There was a great fluctuation in the international price


of silver from 1920 to 1945, during which time the
Mexican Mint produced 458 million of these coins.
However, the transitory lows in the price of silver, did
not cause any problem. When the Banco de México
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was created in 1925, the price of silver was $0.691 dollars an ounce, and The .500 Fine peso coin (7 grammes of pure silver)
it fell as low as $0.254 dollars an ounce in 1932.

Never, during those 25 years, did anyone ever return to the Banco de A new $1 peso coin containing silver went into circulation
México one single .720 peso coin as a result of a fall in the value of the in 1947; it contained less silver than the previous $1
silver contained in the coin. (We mention this fact, because at the present peso coin - only 7 grammes of pure silver - and the
time, in opposition to our project for the monetization of the silver “Libertad” fineness of the silver was .500. (That is to say, the coin
ounce, the Banco de México is unreasonably alleging that in the case of weighed 14 grammes, but only half the weight (.500)
falls in the value of silver, the “Libertad” coins would be returned to it by the was silver.)
population.)

The problem which faced the .720 coin was a rise in the price of the metal,
which went up from $0.45 to $0.71 dollars an ounce in 1945; the coin was
forced out of circulation, for the peso value of the silver it contained was This coin remained in
worth more that the $1 peso value engraved upon it; minting had to cease
circulation only three
as it was uneconomic to produce the coin.
years, because an
abrupt devaluation of the
peso (the rate of
exchange of the peso
went from $5.74
pesos/dollar, to $8.01
pesos/dollar in 1949)
raised the peso value of
the silver in the coin to
over $1 peso, engraved
upon the coin; minting
of this coinage ceased.

The .300 Fine peso coin (4 grammes of pure silver)

A new silver coinage was launched in 1950. This time


the peso coin was issued with a weight of 13.33 grammes
of which only 4 grammes were pure silver; thus, the
fineness was .300.

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The Monetary Reform of 1979

Another devaluation of the peso In 1979, President José López Portillo wished to create a silver coinage
in 1954 lowered the rate of that would not face, once again, the recurring and insoluble problem of a
exchange once more, from “point of fusion”; he therefore presented to the Legislature a Bill, which for
$8.65 pesos/dollar to $11.34 the first time brought into circulation a silver coin with no nominal legal
pesos/dollar, and once again, tender value engraved upon it: the “Libertad”, one ounce of pure silver.
the peso value of the silver in
the coin was more than $1 peso,
and the coin was forced out of The Reform stipulated (a stipulation which today is still monetary law, but
circulation. which is unheeded) that the value of this new coin should be determined
“based on the international price of its pure metal content” and that this
coin should enjoy “legal tender value for the equivalent of its quote in
The .100 Fine peso coin (1.6 grammes of pure silver) pesos”.

Thanks to the first condition, these coins have never reached a “point of
In 1957 there was, once again, a reduction in the silver
fusion”; in spite of peso devaluations and rises in the international price of
content of the Mexican $1 peso coin; it was minted with
silver, the Banco de México has been minting these coins since 1979
a total weight of 16 grammes, of which only 1.6 grammes
without interruption; the coins have not been melted down and the population
was pure silver – a fineness of .100.
is holding them as savings.

However, the second purpose – that


they should be a means of payment
This coin circulated for ten
– could not be accomplished,
years, until 1967, when once
because due to the fluctuation of
again, the coins reached the
the legal tender value of the coins
“point of fusion”: in that year,
according to the method by which
the international price of silver
they were quoted that value, their
rose from $1.29 dollars per
use as money implied losses to the
Troy ounce, to $2.06 dollars
Banco de México or to the holders of
per Troy ounce and the public
this coin, when there was a fall in the
withdrew these coins from
international price of silver.
circulation and sent them to “Libertad”: 1 ounce of pure silver,
issued by Mexican Mint.
the refinery.

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Conclusions The solution
In order to attain the two desireable objectives, that the silver coin shall
never reach a “point of fusion” and that the silver coin may simultaneously
be used as a means of payment – as money – the present Bill before the
Mexican 59th Legislature stipulates three necessary conditions:
1 Both legislators and Banco de México have
evinced a clear and constant record of attempts
to offer the public silver coinage which will also
be a means of payment. 1. A coin with a quoted
nominal value
The coin to be monetized shall not bear an engraved nominal value, a
condition filled by the “Libertad” silver ounce. This will allow its nominal
2 The transitory falls in the price of silver did not
hinder the circulation of silver coinage with
quoted value to rise in response to a devaluation of the peso or to a rise
in the international price of silver, so that minting the coin will always be
engraved nominal value, for neither the saver of economically feasible and so that it will remain in circulation without ending
these coins, nor the user in commerce, nor the up at the refinery.
Banco de México ever suffered a loss, because
the legal tender value of these silver coins never
diminished, and this guaranteed their full 2. An official quote from
acceptance by the population.
the Central Bank
The Banco de México shall determine its official quote (with a small seigniorage
in its favor). For all practical purposes, a quoted nominal value is the equivalent
of an engraved nominal value, with the difference that the first can be adjusted
3 What drove the silver coinage out of circulation,
was a series of rises in the peso value of silver, to accommodate rises in the price of silver when they occur.
which made the silver in the coins worth more
Coins made of base metals bear an engraved nominal value in order to
than the engraved nominal value. communicate to the public their legal tender value. However, the
communication of the legal tender value of the “Libertad” can be done quite
as effectively by modern means of communication: the press, radio,
television, the interbank communications network or the Internet, thus
making unnecessary the impractical engraving of a permanent, fixed peso
value upon a pure silver coin.

Besides this condition, in order for the “Libertad” to become money, its
quoted value must be a value that cannot be reduced – as was the case

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with all the previous silver coins which had a nominal engraved value, which
of course, could never be reduced. A coin whose legal tender value rises
and falls cannot become money. It will not be accepted as such, by the
banking system, to begin with. In order to become money, the falls in the
price of the value of silver contained in the coin must not affect the quoted
legal tender value. Thus, losses to the holders of the coin will be nonexistent
and the Banco de México will be immune to losses from speculative flows.
This was the key provision omitted from the legislation of 1979, whose
intention was to monetize the “Libertad”.

Therefore, the third indispensable condition:

3. The legal tender value,


once quoted, must not be reduced.
The quote by the Banco de México shall be increased when the price of
silver rises (as it is doing at this time) but that according to the Law, the
quote shall not be reduced if the contrary takes place, so that no legal tender
quote can be lower than the last established quote.

The projected Law, according to the present Bill before the Legislature,
seeks to crown the legislative efforts of almost one century, by proposing
a technique through which the “Libertad” will become a means of saving Notes
with enduring value and complete liquidity, because it has become money.
The Mexican monetary unit will remain the fiat peso.
The graph in the next page illustrates the theoretical behavior of the “Libertad”
ounce if quoted by the proposed method, during the period of ten years The ‘Libertad’, when monetized, will acquire a quoted legal tender value
1995-2005, based on real data for silver and exchange rates. in Mexican pesos.

As can be seen, the coin would always have produced a seigniorage for When a ‘Libertad’ is deposited in a bank for credit to an account, the credit
the Banco de México, the coin would never have reached the “point of will be in Mexican pesos at the quoted legal tender value.
fusion” and the occasional falls in the price of silver would not have produced
losses, neither to its holders nor to the Banco de México, because its There will be no separate bank accounts for ‘Libertad’ coins.
quoted legal tender value would never have diminished.
The Mexican Central Bank will mint such quantities of ‘Libertad’, as it deems
By means of this technique, Mexicans would enjoy the use of a silver coin convenient.
complementary to, and in parallel with the fiat money system, and Mexico’s
persistent political effort to use this metal as money would come to full Those who wish to acquire ‘Libertad’ coins may or may not find them
fruition – “A consummation devoutly to be wished!”. available at their bank.
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Our technique will also
function for the reintroduction
into European circulation of a
gold coin

No engraved nominal value.

A quoted nominal legal tender


value in Euros, which can float
upwards.

No quote below the last quote,


in case of a fall in the value of
gold in Euros.

Utilizing this technique, the


gold coin would circulate
permanently in parallel
with the Euro.
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The Gold ‘Ecu’ Suggested method for Quote:

We suggest a gold coin to be called the ‘Ecu’, with same (International price of gold expressed in euros) / (.9) for
characteristics as the French, Italian, Swiss and Belgian coins 10% seigniorage, rounded to the nearest multiple of 5.
issued under the 1871 agreement between these nations.

(All actual sizes)

All these 1871 coins had the same:


Size: diameter 21 mm.
Weight: 6.45 grammes.
Sources:
Fineness: .900
Historical price of gold: www.kitco.com / Historical exchange rate of the euros: www.oanda.com

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The Gold Ecu:
The Gold Ecu The Crown of the EMU

• A Gold ‘Ecu’ can circulate permanently in parallel with Euros.

• It would contribute to social and political cohesion among the nations of


the European Union.

• Its efficiency as a symbol of European Union is unsurpassable.

The message transmitted by the coin:

“Europe faces the future confidently, proudly


recognizing its historic achievements and values
for the benefit of mankind. The gold signifies the
humane dimension of the European Union”.

The Gold Ecu could be placed in circulation by using superfluous Central


Bank reserves and /or ECB reserves to purchase gold, which could then
be sold to the public at the quoted legal tender value. (As money, the
demand would be enormous.)

As the strongest buyer, the EMU could raise the price of Gold gradually as
an alternative to buying more US Treasury debt.
Size: Diameter 21 mm.
Weight: 6.45 grammes Gold Ecus would provide an excellent means of savings and investment
Gold content: 5.81 grammes pure gold for Europeans, increasingly worried about the value of their pensions and
Fineness: .900 savings plans, and would give the ECB a means of regulating the money
supply, as gold purchases by the public wolud absorb Euros in circulation.

This is precisely the policy Richard Lehmann (Forbes.com July 27, 2005)
recommends for China. Richard Lehmann is Editor of Forbes / Lehmann
Income Securities Investor.
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The Silver Bill
in the Mexican Congress

This project has been under discussion in


the Congress since March 2003.

Last April 5th, seven congressmen from all


parties officialy presented a Bill for Reform
before the Congress, filling the requirements
outlined here.

At present, the Bill is being discussed in


Committee of the House of Representatives.

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Congressional Support
“Mexico deserves the most beautiful coin in the world
“We hope to have good news for Mexicans from the and the most valuable … besides, there is a dollar crisis
Congress, that we shall have silver money, the ‘Libertad’ coming, and we must be prepared; this silver coin can
ounce, hard, strong and solid …” very well be the lifesaver for the Mexican economy …”.

Fernando Guzmán Pérez Peláez José Julio González Garza


PAN Federal Congressman PAN Federal Congressman

“It will generate more savings and each Mexican will be “A very nationalist measure that will allow our silver, a
able to own this instrument, a means of defense against non-renewable national resource, to remain among
unforeseen (events) …” Mexicans …”

Diego Fernández de Cevallos Leonardo Álvarez Romo


PAN Federal Congressman PVEM Federal Congressman

“The state of Zacatecas, as the number 1 producer of silver


“This is a very useful opportunity socially, with economic at national level, would be greatly benefited in its economy
support, within reach of all economic sectors –it is a theme and it would not only generate wealth, but jobs which would
that draws the interest of different parties ...” stop the growth of emigration to the U.S. …”

Enrique Burgos García Rafael Candelas Salinas


PRI Federal Congressman PRD Federal Congressman

“We are going to support this Bill totally, the parties are
in agreement in this because it is a noble Bill, very healthy “In order to have value, money must be a measure of
and it is not costly … we are going to generate employment, something valuable and real to back it up. Silver does not
we are going to have, once again, a money that is our devalue because it does not lose its value over time …”
own...”
Fauzi Hamdán Amad
Martha Lucía Micher Camarena PAN Federal Congressman
PRD Federal Congressman

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Statement of Agreement

Governors of Mexican States

Partido Verde Ecologista Partido de la Revolución


de México Democrática

Partido Acción Nacional Partido Revolucionario On November 30, 2004, the 31 Governors of all the states
Institucional that make up the Mexican Republic sent a communiqué to the
“Ways and Means” Committee of the Mexican House of
Representatives, in which they expressed their unanimous
approval of the monetization of silver and urged the Committee
to approve a bill which aims to achieve precisely this objective.
During the present 59th Mexican Congress,
343 Congressman of the main parties,
suscribed a Statement of Agreement in support
of the Bill.

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Mexican Newspaper Writers Mexicans
want the ‘Libertad’ monetized

176 Mexican newspaper writers put their signatures A poll by national T.V. Azteca, Mexico’s #2 television
to full page declarations by the Journalists’ Club in chain, revealed that 96% of viewers approved of
the main newspapers of Mexico City, also in support the monetization of the silver ounce, when asked if
of the monetization of the “Libertad” silver ounce . they were, or were not, in favor.

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A persistent national effort
may become a reality

1920 – 1945 Mexican silver peso, .720 fine


(went out of circulation)

1946 – 1967 Silver pesos with various silver


contents (went out of circulation) Peso .720 Fine

1979 Silver ounce with no nominal value


engraved (could not be used as a means
of payment)

1979 Silver ‘Morelos’ $100 peso coin


(went out of circulation)
Lic. José López Portillo
President of Mexico
1976-1982
1993 $10, 20 and 50 pesos coins with
silver (went out of circulation)

2003 ‘Coins of the Mexican States’.


Nominal engraved value $100 pesos,
with 1/2 Troy oz. of silver (This coin will
go out of circulation when the price of 1/2
Troy oz. of silver is over $100 pesos). Dr. Guillermo Ortíz Martínez
Governor of the
Banco de México

2005 The ‘Libertad’ silver ounce, no nominal


engraved value, quoted by the Banco
de México.

It would remain in circulation indefinitely because


its value would be adjusted upward according to
the peso price of silver, and it would be accepted
as a means of payment because its quoted legal
tender value could not be reduced.
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