MEXICO: BUSINESSMAN HUGO SALINAS PRICE WANTS TO REINTRODUCE SILVER COINS AS LEGAL CURRENCY.

Record ID: 839609

  • Title: MEXICO: BUSINESSMAN HUGO SALINAS PRICE WANTS TO REINTRODUCE SILVER COINS AS LEGAL CURRENCY.
  • Date: 18th March 2005
  • Summary: MEXICO CITY, MEXICO (RECENT) (REUTERS - ACCESS ALL) SCU: (SOUNDBITE) (Spanish) PRICE SAYING: "We know that all of the paper (money) is devaluing across the world. Why don't people save money? Because the people aren't stupid, they don't save because it is not in their best interest but if we give them something worth saving, the people will save."
  • Embargoed: 2nd April 2005 13:00
  • Keywords:
  • Location: MEXICO CITY AND ZACATECAS, MEXICO
  • City:
  • Country: Mexico
  • Topics: Economy,Quirky,Light / Amusing / Unusual / Quirky
  • Reuters ID: LVA2M8YHP8XF3NS0PZA09RAXNP4M
  • Aspect Ratio:
  • Story Text: Mexico mulls silver lining against currency crash.
    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.
    "Who is going to say they don't like this coin and I do know that its value cannot go lower than that of the peso and that there is an opportunity to increase in value,"
    said Price, whose son, Ricardo Salinas, is chief executive of Mexico's No. 2 broadcaster, TV Azteca.
    "I think that this is very attractive and very big."
    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 U.S. dollars 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.
    "The problem is when you adopt a gold standard, a silver standard it's that your injecting the volatility of silver into the price index so instead of having a solid currency, you will have the opposite. I do believe that this is one subject that has been discussed more than enough times," Urquia said in a recent interview.
    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.
    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.
    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.
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