The following is a 2005 article(couldn't find anything more recent in english) , but the initiative of adopting silver as currency along with fiat paper money is being discussed in the present legislature in Mexico and its being getting some supporters from bureaucrats and the media. I wanted to know your thoughts on that.
Mexico Mulls Silver Lining Against Currency Crash
Mexico City
- An influential Mexican businessman wants to reintroduce silver coins
as legal currency - as in Mexico's 16th century heyday - and,
far-fetched as it may sound, the idea is winning support.
The
Senate has already passed the initiative, and the lower house is
expected to vote soon on the bill, which has struck a nerve in a
country where decades of financial crisis have fomented a deep distrust
of paper currency.
The central bank opposes the plan as anachronistic.
Hugo
Salinas Price, founder of the specialty retailer Elektra, says silver
could be the shield to protect Mexicans' savings from another currency
collapse.
"The
idea was born from the need to protect the currency," said Price, whose
son, Ricardo Salinas, is chief executive of Mexico's No. 2 broadcaster,
TV Azteca.
Mexico's
peso is stable now, and has actually strengthened of late, but fear of
currency collapse is etched deep in the Mexican psyche after previous
financial crises.
Mexico
was a top supplier of silver coins during the colonial era, when they
were significant components of the Spanish and British treasuries. The
minting of coins in the New World began in 1535 in Mexico City.
According
to Price and advocate lawmakers interviewed by Reuters, the new coins
would be valued according to the price of silver as a commodity, with
the central bank, Banco de Mexico, managing coinage and charging a 10
percent seigniorage.
The
1-ounce silver coin, called the Libertad (Liberty), would have no
nominal value engraved upon it, and would circulate alongside the
conventional peso currency. Its worth would be stated daily in a
central bank quote.
Silver traded at about $7.50 an ounce on Friday in New York. The peso was valued at about 11 per U.S. dollar.
Price
said the Libertad would be protected from losing value because losses
on commodity markets would be compensated for by central bank
valuations.
Representatives
of the central bank could not be reached to comment, but it has
rejected the idea in arguments to legislators, citing concerns ranging
from counterfeiting to minting costs.
Independent
economists also argue against monetizing silver, saying it has no place
in a modern world of interconnected and open economies.
Rafael
Urquia, an analyst with Banamex Accival brokerage in Mexico City, said
the plan would limit the flexibility of monetary policy.
"I
am inclined to think that this will not pass (Congress)," Urquia said
in a recent interview. "I would like to think that the legislators
sitting on economic committees have some common sense."
Opponents
also cite the costs of adapting the currency system to incorporate
silver coins, and list the subsequent transaction costs and even
minting costs as other concerns.
"This idea of a hybrid currency seeks the best of both worlds - and I think that would be difficult," Urquia said.
Still,
the 1994-95 financial meltdown known as the "Tequila crisis" is just
the most recent example of why some Mexicans are eager for an
alternative safe haven for their money.
Despite recent advances, Mexico still has one of Latin America's lowest rates of savings and bank credit.
Most
past crises have coincided with presidential elections, and the tight,
three-way race for the 2006 vote has generated worries that the peso
could be in for a steep decline.
Still,
Mexico produced some 3 million ounces of silver in 2004 and state
governors and legislators say the plan could give a boost to the
economies of states producing silver.
"We
see this as a viable initiative," said Fernando Guzman, a federal
deputy with the governing National Action Party. "It would bring a new
vitality to the state economies."
Proponents
of silver money cite Gresham's law - named after the financial agent of
England's Queen Elizabeth I, Sir Thomas Gresham (1519-1579) - to
support arguments that people tend to save currencies with intrinsic
values when they are traded alongside fiduciary monies.
"I
can tell you one thing for sure, I don't always stop to pick up a peso
if I drop it," said Violeta de la Torre, an office administrator. "But
I certainly wouldn't leave a silver ounce lying in the street."
Pav Jordan - Reuters
Do you think this could be somehow beneficial for Mexico? if approved, and do you think it would have an impact in the US and other countries?
Information about the current initiative (spanish):http://www.plata.com.mx/mplata/articulos/articulosFilt.asp?fiidarticulo=367