Friday, September 15, 2017

Return to gold or silver backed currencies continuing to gain steam as Mexico debates monetizing silver

Until 1971 most of the world was on a gold or silver backed monetary system.  But over the course of the past 46 years the transition to a debt based fiat currency system has now encompassed all economies.

The results of this have been hit or miss as artificial booms and busts have led some nations such as China and Japan to emerge as two of the top five economies in the world.  However for countries like Argentina and Venenezuela, who primarily export commodities rather than finished goods, the removal of gold from their currency has placed them in a difficult situation as monetary devaluation over time has crushed their economies and driven them at certain times into high or even hyperinflation.

So as the world looks into the abyss of nearly $250 trillion of global debt, a re-awakening of asset backed money is taking place in a growing number of spots around the world, and the newest country to take a serious look at returning to a gold or silver standard is Mexico.

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). - Mish Talk
Mexico's debate over monetizing silver is a not a complete return to a silver standard, but what it does is provide consumers, savers, and investors an alternative to bonds which today provide less yield than the rate of inflation.  And by keeping money stored in a precious metal that will be protected from global banker influence, it will alleviate much of the Mexican people's plight for holding or owning a fiat currency that is now at record levels of devaluation.


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