THE “LIBERTY” SILVER OUNCE: ITS ORIGIN AND ITS FUTURE

(by Hugo Salinas Price)

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.

ORIGIN OF THE “LIBERTY” SILVER OUNCE

Guest Post: By Hugo Salinas Price

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…

The original article found here: The ‘Liberty’ Silver Ounce: its Origin and its Future

You can find more excellent articles by Hugo Salinas Price at his website, The Silver Coin For Mexico: Website Of Hugo Salinas Price

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DisappearingCulture
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DisappearingCulture

The modern Libertad [2019] still has no monetary value on it, which is exceedingly rare for a sovereign silver coin. A few gold coins have no monetary value on them [e.g. British sovereign, Krugerrand]

Vincent A Hauser
Guest

Why not simplify the Silver Liberty idea by giving it a fixed amount of pesos above the Mexican Silver Peso spot price . For example why not put ( 50 pesos + spot on the coin) . This would simplify things as the coin would always be worth 50 pesos above the spot price so the people in the market place would look at the current spot price and add 50 pesos to it . This would also allow the government 50 pesos per coin profit !

Vincent A Hauser
Guest

oops I meant (50 pesos + spot on the coin ) / I just realized I could edit my comment so I went back and edited it !

Brant Lee
Guest
Brant Lee

I absolutely love old Mexican coins along with the Libertad. Great History and some are not a bad investment. Check out the (silver dollar size) One Peso Caballito coins for instance.

DisappearingCulture
Guest
DisappearingCulture

How about the 1947-1948 Mexican 5 Peso Silver Coin? 90% silver like American junk silver, but .868 troy ounce; American silver dollars have .77 troy ounce.

DisappearingCulture
Guest
DisappearingCulture

Hugo Salinas Price has floated/supported this idea for years. This article implies lots of Mexicans own this coin. “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.” But most Mexicans have sold them [or they never owned them at all] as they are just bullion silver to be exchanged for currency to buy the things they need. Mexicans still owning these are probably about the same percentage of Americans owning American… Read more »

DT
Guest
DT

Mr.Salinas-Price’s article explains very simply why gold or silver cannot be currency in today’s world of fully computerized markets. Contracts cannot be signed based on the price of precious metals because their prices fluctuate. The only way silver or gold could become currency would be by governmental decree (fiat). Their prices would have to be artificially set by law. How is that different than having the dollar as currency by decree (fiat)? It doesn’t matter if it is a piece of paper or a piece of metal, if the value is arbitrarily set by Congress. This is what you hardcore… Read more »

Jared
Guest
Jared

Gold and Silver are Constitutional money, when we turn back to the Constitution it will again be money. Also it meets all the requirements for real money! 👍

SkeptiSchism
Guest
SkeptiSchism

“Mr.Salinas-Price’s article explains very simply why gold or silver cannot be currency in today’s world of fully computerized markets. Contracts cannot be signed based on the price of precious metals because their prices fluctuate. The only way silver or gold could become currency would be by governmental decree (fiat). Their prices would have to be artificially set by law.Mr.Salinas-Price’s article explains very simply why gold or silver cannot be currency in today’s world of fully computerized markets. Contracts cannot be signed based on the price of precious metals because their prices fluctuate. The only way silver or gold could become… Read more »

OutLookingIn
Guest
OutLookingIn

Trust Requires Faith The complete world is fiat. Every single currency in the world is fiat based. This has been so since the death of the Bretton Woods system, on the 15th of August 1971 when the U.S. technically defaulted. Refusing to exchange paper dollars for gold bullion. The survival of any fiat currency relies upon the holder having trust in the issuing country and faith in the currency to perform as an instrument of value. There’s only one big problem with this, it works until trust and faith are lost. Mexico’s 1oz. silver “Liberty” coin has the FULL trust… Read more »

DisappearingCulture
Guest
DisappearingCulture

And Russia and China may be working to turn their currency into more than just fiat.

Nick(222
Guest
Nick(222

Another great benefit to Mexico from the Mexican Liberty Ounce is that it has kept millions of ounces of silver in Mexico instead of having them exported out of Mexico for fiat money. With or without a credit crisis or crash or reset, this will be of great help to Mexico in the future. In contrast, India’s Prime Minister Modi did the opposite and worked to make it harder for Indians to own gold – talk about horrific timing!!!!

DisappearingCulture
Guest
DisappearingCulture

One ounce Mexican coins are sold by Mexicans who need currency to buy the things they want or need. They are also sold in the U.S. by PM dealers. What proof is there that millions of ounces are staying in Mexico? If they are, they are concentrating into fewer hands [the Mexicans who can afford to be silver stackers]. The stackers may also own sovereign silver coins from other countries, and rounds/bars as well. I read this narrative from Hugo Salinas Price years ago; sounded like a well-intentioned dream then. People who need currency sell things other people will exchange… Read more »

Nick)222
Guest
Nick)222

The point was not that ALL “Ounces” would remain in Mexico. The examples you cite only account for a small exception for staying in Mexico. As Price writes above, “These ounces remain in the possession of Mexicans, as savings which afford some protection against the depreciation of the Mexican peso”. As a further note, you wrote, “One ounce Mexican coins are sold by Mexicans who need currency to buy the things they want or need.” Yes, but almost all of this type of transaction is between Mexicans so the silver stays in Mexico. You also wrote, “The stackers may also… Read more »

OutLookingIn
Guest
OutLookingIn

The Long & The Short Of It The commercials (bullion banks etc.) keep piling on more silver shorts in an attempt to force the price lower. No such luck, so far all they have been able to accomplish is to keep the price from rising too fast. As of this morning July 31 2019, the overall open interest (shorts) stand at 239,266 contracts, very close to the all time record high of 244,196 contracts. Remember, one contract is equal to 5,000 ounces of silver. Just do the math. Do you think there’s that much physical silver in their vaults to… Read more »

james r
Guest
james r

OutLook,

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Wanderlei Silver
Guest
Wanderlei Silver

The benefits to the public would far outweigh the negatives with silver as money. The biggest losers would be the Government that couldn’t debase currency to deficit spend.

Steve
Guest
Steve

Another nail in the coffin today check out the price action the min the fed lowered rates boggles the mind that the penny has not dropped yet