The surge in gold and silver prices is great news for precious metals investors. For one retired Mexican businessman, it's also evidence that popular opinion is coming round to his way of thinking. Hugo Salinas Price, 76, has long argued that most of the world's economic problems began with the abandonment of the gold standard. Fiat currencies, he claims, are "essentially unstable", distorting every aspect of our lives. He's leading the campaign for the re-monetisation of silver in Mexico.
Pie in the sky? Salinas doesn't think so. "I think there's a good chance it will come to fruition in the near future," he says. His proposed bill to institute a pure silver coin the one-ounce Libertad to run in parallel with the paper peso has won support across the Mexican Congress, says The Daily Bell. Salinas also quotes a 2009 poll, which found that 81% of Mexicans are in favour of restoring "honest money". "The terrible condition of the world, in monetary terms, is a plus for the silver coin," he says.
A prolific author and speaker, who cites the Austrian school of economists as his inspiration, Salinas is lionised as a father of the "sound money" movement. Yet he's a university drop-out who never formally trained as an economist. He only embarked on his crusade after passing on the family business, Grupo Salinas, to his son, Ricardo Salinas Pliego, in 1987. Originally centred around Mexico's largest electronics retail chain, Elektra, the business is now a multi-billion regional behemoth straddling retail, telecommunications, TV and finance, says BusinessWeek. The group's Banco Azteca is one of Latin America's largest providers of consumer finance. If Salinas gets his way on silver, the family bank will play a key role in the revolution (see box below).
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Modest in demeanour, with old-fashioned, courtly manners, Salinas says his "biggest achievement in business" was stepping aside for his more driven son. "I am more of a thinker." But that underplays the vital role he played in modernising the firm his grandfather started as a Monterrey-based furniture manufacturer. As a young chief executive in the 1950s, Salinas rode the go-go consumer goods wave, steering the company into television manufacturing and opening its first retail stores. But in the early 1980s, disaster struck. When oil prices dived, the peso lost 80% of its value against the dollar in two years. In 1982, Elektra came within a whisker of bankruptcy because its sales were in pesos, while its debts were in dollars.
Salinas managed to restructure the group. But the experience scarred him. When Grupo Salinas was threatened once again by the 1995 peso devaluation, he wrote his first book, Silver: the Road for Mexico. These days, he is clear-eyed about the future. "This is my last decade! From here, the grave," he told the Daily Bell. Until then, he sees it as his mission to "inspire our people to the greatest thing they can do: monetise the silver coin".
'It's not perfect... but it's better than paper'
Half-American himself (his mother was born in Pennsylvania), Salinas has mixed views about Mexico's powerful northern neighbour. But his ideas on sound money embraced by politicians like Ron Paul are rapidly gaining traction there. Once the preserve of what Bill Emmott describes in The Times as "Tea Party supporters who favour a cabin in the woods and a pick-up with a rifle-rack behind the driver's seat", support for bullion has gone mainstream. The Utah state government has just passed a bill making gold and silver coins legal tender, notes Jack Farchy in the Financial Times. Meanwhile, "the US Mint's sales of silver coins have been running at record pace".
Given the notorious volatility of silver prices, how would re-monetisation work? "The Central Bank would give the coin its monetary value slightly higher than its bullion value based on a formula in the proposed legislation," says Salinas. If the bullion price goes up, the value of the coin will rise with it. If, however, the price of silver falls, "the monetary value of the coin would remain where it was last pegged." It's not a perfect scheme, he admits. "But still better than any paper or digital money" not least because it would provide an inflation-proof refuge for savers.
Critics might say there's something odd about a man who made his money on the 'never-never' (credit sales played a huge part in Elektra's growth) now preaching the virtues of prudent consumer saving. All the more so since Banco Azteca was recently fingered by BusinessWeek for its allegedly rapacious micro-lending practices. But Salinas sees no contradiction. As he wrote in 2007 when launching the bank's "Silver in the Vault" savings service: silver-based accounts "would immediately serve as unquestionable collateral for instant loans by the bank". Moreover, the silver dollar will spark "an awakening of a spirit of confidence and pride in our country".
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