Political Metals

Hugo Salinas Price is a successful, retired businessman who lives in Mexico and has been a follower of the Austrian School of Economics since his youth. As President of the Mexican Civic Association Pro Silver, he has been actively lobbying the Mexican Congress to approve legislation, which will institute the pure silver “Libertad” ounce as money.

As a follow through of my article discussing the merits of using PMs as a store of wealth (savings), here’s an idea from Price on how silver can be monitized, used as a reliable store of wealth and circulated alongside existing paper currencies.

During the last fifteen years I have devoted my efforts to one single aim, and that is to achieve the monetization of a silver ounce coin currently minted by our Central Bank. This coin has no engraved monetary value and is called the “Libertad” coin; it can very easily be turned into a monetary coin, that is to say, a coin with a monetary value. As such, anyone owning such a coin could, if he or she wished, be able to pay any bill or debt denominated in Mexican pesos.

The monetary value of this coin would be slightly higher than its bullion value; the monetary value would not fluctuate according to the price of the silver ounce, but its monetary value would be raised if the bullion price of silver rose and closed in on the monetary value. The Central Bank would give the coin its monetary value, according to a formula in the proposed legislation.

If the price of silver fell to $1 dollars an ounce, the monetary value of the coin would remain where it was last pegged. (But it would still be better money than any paper or digital money in the world!)

On the other hand, if silver should go to $50 dollars an ounce, this coin would remain in circulation, useable as money, because then its monetary value would be about $57 dollars, and stay there until a further rise in the value of bullion silver.

The monetized silver ounce would be an excellent refuge for savings and would attract them irresistibly. You don’t need a bank account, you don’t even have to know how to sign your name, to invest your savings in this simple and inflation-proof way.

This coin would be better money than the US dollar and I expect many Americans would be wanting to own these “Libertad” ounces once monetization is realized.

If this idea interests you, read his latest essay “A discussion of precious metals as money“ presented at The Cheviot Sound Money Conference, Guildhall, London on 27 January 2011. An excerpt from pages 20-21 is reproduced below [Emphasis mine].

The rupture of a paradigm is a rare event; entrenched ideas are hard to dislodge. A fresh approach leads to new avenues of action and opens up new horizons which can resolve the total dead-end confronting the world. The system of fiat money issued by banking systems has exhausted itself and cannot offer real alternatives to progress, but only such aberrations as QE 2. The first thing that will happen when the prevailing monetary paradigm is broken is that people will immediately begin to regard money in a different light: they will have an option, where there was previously no option at all.Britain would no doubt receive the monetization of a silver coin most enthusiastically. The demand for the coin would be enormous. If the bankers are allowed to have their way, there will be no monetized silver coin. They will adamantly oppose it. They will be frightened to death of the preference which the British would surely give to the silver coin. They will allege that if the silver coin becomes a reality, Britain is doomed. The bankers are prisoners of their paradigm and can think in no other terms.No one can foresee all the consequences of introducing a silver coin into circulation in parallel with paper and digital money. Churchill once said, “In politics, experimentation is revolution.” However, real silver money has been the rule in history, not the exception; thus a partial return to silver money as an option alongside paper and digital money is hardly an innovation or experimentation. In historic terms, what has been  experimentation – and QE 2 is avowedly experimentation – has been global fiat money created by bankers who quite evidently have had no notion of what they were doing and did not know or did not care what the consequences of their actions would be. The British would experience the joy of holding real money in their hands and saving money that will surely be worth something in the years to come: money that cannot be devalued. Revolution, for the bankers who have not lived up to the trust placed in them; for the people, it heralds peace of mind and hope for a better future, not revolution.

Here’s another of his interesting and related article. It’s his take on “Why the gold dinar and silver dirham have failed to take off in Malaysia“.

While Mahathir merely talked about the Dinar & Dirham, the Kelantan government actually acted on it. In August 2010, AsianTribune reported that “a Malaysian state has introduced the gold and silver coins as official currency, reviving a practice from early Islamic era. The Kelantan state of Malaysia has become the first to introduce the gold dinar and silver dirham for use.

But Malaysia is not the only country where individuals are beginning to return to the use of gold and silver as currency for ordinary daily transactions. In Indonesia, ordinary men and women on the street have realized that transacting and saving in gold & silver have maintained, and even increased their purchasing power compared to keeping paper currency. The gold Dinar and silver Dirham is being circulated alongside the official fiat currency - Indonesian Rupiah.

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Further reading: 

Integrating al-Rahn with the Gold Dinar: The initial building-blocks towards a gold-based economy - By Ahamed Kameel Mydin Meera.

Pursuant to arguments put forward by Meera and Larbani (2006) that the maqasid alShariah are unattainable within the present fiat monetary system and that real money systems based on commodities like gold and silver are indeed compatible with the maqasid, this paper presents a way to introduce a gold-based payment system within the fiat monetary environment. The most practical way is to introduce the gold-payment system as a dual system. In the initial phase, individuals and businesses should be made to own gold gradually and once the ‘critical-mass’ is there, thereafter to turn the gold ownership into a payment system. Integrating al-rahn, the Islamic pawn-broking, with the gold dinar is one initial building block that can be pursued. This paper attempts to provide the mechanisms for integrating al-rahn with the gold dinar payment system.

Full paper

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