Mexican Civic Association Pro Silver

Silver Coin for Mexico

The Website of Hugo Salinas Price

Liberty Ounce Price Source: Banco Azteca, Multiple Banking Institution
SELL $539.00 BUY $439.00

Imaginary Money ‘I-M’
Friday, 15 July 2005
Hugo Salinas Price

Money is the medium of exchange for goods and services which is generally accepted in a society.

There are different types and forms of money.

Real money. Through history, real money has been gold or silver. For reasons of convenience, these metals were minted bearing the seal of the governing authority, which assured the purity and weight of the coinage. Minting gold and silver coins has always been an act of Sovereignty.

In the long history of mankind’s use of money, it is only in the last 300 years that new forms of money have been invented. The monetary bubble created by the Scotsman, John Law in Paris in the years 1718-1720 marks the first experiment with paper money in the history of the West, an experiment which came to a catastrophic end.

Real money has only fallen into disuse due to the obstacles to its use created by governments, and when governments are no longer powerful enough to create those obstacles, humanity will revert once more to real money, which responds to the eternal, unchanging needs of human nature.

Fiduciary money. Such money was not gold or silver coins, but certificates that promised the delivery of gold or silver coins to the holder of the certificate. These certificates took the form of “promissory notes” issued by a banking company. They were banknotes, bills payable “at sight”, that is immediately “collectable” in gold or silver by the bearer.

The first fiduciary money that appeared in Mexico, were promissory notes payable by a branch of the Bank of London and South America, issued in 1854. They were received with skepticism, fully justified by the subsequent history of paper money in Mexico.

Fiduciary money got its name from the Latin root, “fido”, which means “I trust”. The holder of the note trusted that the issuer would in fact deliver gold or silver against the presentation of the note.

Today, fiduciary money no longer exists in the world.

No bill or banknote in the modern world, represents an enforceable right to collect anything – other than another note - from the issuer of the note.

Fiat money. This is the term for money that promises neither the delivery of gold nor of silver, nor of anything else to the bearer. The world “fiat” means “let this be done” in Latin. It is money that exists by decree of the governing power. It has no “backing” whatsoever. Today, there is only fiat money in the world.

Fiat money can be used in commerce, because at the moment it was created it substituted some other money that either was something of value, such as gold or silver; or it promised delivery of something of value, in the case of fiduciary money.

The real or fiduciary money that was replaced by fiat, passed on part of its value to the fiat money. It was from the previously existing real or fiduciary money, to which a discount was applied, that fiat derived its value and acceptance in trade.

We know the exact date at which the last tenuous connection of fiduciary money with something of value was broken, and the world was left with fiat money, exclusively. That date is the 15th of August of 1971, the day on which President Nixon of the U.S.A. reneged on the American promise to deliver one gold ounce for every $35 dollars in the hands of Central Banks of the world, if these were presented for collection at the Treasury.

Imaginary fiat money. Along with fiduciary money issued by the banks there was born another type of money, which consists in an “account balance” at a bank. (Today, an account balance at a Money Market Fund also counts as imaginary fiat money.) When fiduciary money finally disappeared, all account balances of depositors turned into accounts of imaginary money.

This balance is not like real money of gold or silver, which can be physically owned and held in personal possession.

Nor is it like the bills and coins of fiat money, which can also be held in personal, physical possession.

This money in a bank account or a money market account, is entirely imaginary; it only exists as a quantity of units (units of nothing, simply abstract digits in a computer) in an account that is in the name of one or more owners.

The enormous power of human imagination is stunningly evident in the fact that the greater part of money that exists in the Mexican economy is money in bank accounts and has only a totally imaginary existence. One might say it has a kind of “spiritual” existence, completely disembodied.

As of May 31, 2005, there was in Mexico the quantity of $278 billion pesos in fiat notes and coins. This money has a physical existence. By comparison, at the same date we had the totally imaginary quantity of $616 billion pesos in bank accounts. Adding these together, we get “M-1”, or “money in circulation”: $894 billion pesos. (Figures from Banco de Mexico, rounded to billions.)

That is to say, 69% of the money we use exists only in our collective imagination.

With regard to US physical money – currency – the Fed is vague in its information. We are told only that “the majority” of the bills and coins issued by the Federal Reserve, are circulating outside the U.S.A. The total (given at is also vague: we are only told that the total is about $750 billion dollars (“about three-quarters of a trillion dollars”).

Mexicans use much more physical cash, than Americans. The amount of currency per capita in Mexico is roughly $260 dollars. Let’s take that amount for a guesstimate of notes and coins in circulation in the U.S.

$260 dollars per capita, times 300 million Americans, gives us $78 billion dollars, that is to say, about 10% of all the notes and coins inside and outside the U.S. We know that Americans are much wealthier than Mexicans, but we also know how little physical cash they hold, so that guess might be at least within the ball-park.

By contrast, money in circulation, or M-1, was at June 2005 stated as $1.4 trillion dollars. That is to say, in the U.S. roughly 93% of all money in circulation  was “I-M”, or Imaginary Money.

Let’s take a look at the various risks that affect real, fiduciary, fiat and imaginary money.

Risks to real money

It has a real value which consists of the metal of which it is made. Physical possession is very important.

You can lose gold or silver coins. You can place them in someone else’s custody, either a person or an institution. But the custodian can steal your money too, or find legal reasons not to return it to you. Or, the government can expropriate the metal and take it from the custodian.

Gold and silver coins can be falsified – but this is a minor risk, compared with the risks associated with the other types of money.

On the other hand, this money will always be worth something.

Risks to physical fiat money

All the risks that affect real money, plus another very important risk: because there is no limit to the quantity of fiat that the governing authority can put into circulation, there is also no limit to how much and how fast it can lose value.

Saving up bills is a savings whose value evaporates over time.

Risks to imaginary money. You cannot lose imaginary money the way you can lose money in your wallet. But there are other risks.

Its value goes down over time, just like physical fiat. There is a river of money being created every second. This drags the unit value down. In Mexico, the total of physical and imaginary money (M-1) grew from $126 billion in May of 1995, to $894 billion in May, 2005: 21.6% growth every year. This is rather severe monetary inflation, although prices have not had a similar rise – some because the prices monitored are selected carefully; other prices, because they are not included in any index of prices, such as the Mexican Stock Market. The purchasing power of the Mexican peso in dollars fell, by 2005, to one-half of its 1995 value – and its real fall was greater, because the dollar itself lost significant purchasing power in those ten years.

But the worst risk to imaginary money, is bank failure. Banks do go broke and close their doors. It is rare, but it does happen. The  imaginary money of the depositors then vanishes. This happened in Argentina in 2002 and was  about to happen in Mexico, in 1995, but our government decided to save the depositors from losing their balances at the banks. The government took the losses which should have been the losses of the depositors and of the owners of the banks.  When the government had cleaned up the mess, and began passing the bill (for interest only!) to the taxpayers – who will pay for the losses for generations – then the owners of some of the big banks turned around and sold their nicely cleaned-up banks to Citibank, for $12 billion U.S. and to BBVA, a Spanish bank, for $10 billion, and to HSBC, for a sum which we ignore. And guess what? No taxes were paid on the sale to Citibank! Our government is splendidly generous with bankers.

What Mexicans did not lose right away as depositors, they will lose as taxpayers, over many years. The tax burden now includes a hefty annual amount for (interest only) on the losses absorbed by the Federal Government, from the banking system.

Banking crises are inevitable

A thousand books have been written to demonstrate this fact. However, hardly one of them is included in the curriculum of studies of universities around the world. The universities attract students who dream of making lots of money. Of course, banking and finance produce lots of money – before the crash arrives - and they offer excellent salaries to their officers and employees; so thousands of students of upper middle class families want a university degree

in order to find a job in banking or finance. By way of comparison, in the 2005 school year, only one single student enrolled in the course of studies for a degree as Mining Engineer at the School of Mines of the ancient University of Guanajuato in Mexico. Banking is all the rage!

Of course, students of Banking and Finance would not care to read books that analyze banking operations as they exist today, for they would discover that banking today operates on the basis of fictions that can only lead to collapse and poverty. What they want to believe, is that banking is the glamorous (and lucrative) activity which is the key to modernity, prosperity and progress in a “globalized” world.

If any university taught the truth of banking as it is practiced today all over the world, its graduates would not find jobs in banks. Can one suppose a soft-drink manufacturer would hire executives who were of the opinion that one ingredient of “lite” soft-drinks is poisonous? (Ref.- See aspartame at

Let us not go into another tedious examination of why banking systems today are fated to experience crises. The banks are surrounded by an aura of myth, and it is fruitless to attack a living myth. The only myths we can analyze rationally are dead myths. The banking myth is protected by innumerable and powerful interests who profit from its existence.

But, in spite of the myth, we affirm that banking systems always end up in a crisis, for one simple reason (there are more, but we will not exhaust ourselves by reviewing them):  they borrow short and lend long, and they do this, with the imaginary money of the depositors. All commercial banks in the world, are insolvent. They cannot “wind up” their business – it would reveal their bankruptcy. The more they grow – the more they lend and the more imaginary money in the accounts of their depositors – the more insolvent they become.

As soon as a banking system stops growing and banks have to begin returning physical fiat to the owners of imaginary money, their problems begin. They have to begin collecting, and their loans outstanding have to contract; while this is natural for any business that has ups and downs, it is fatal to banking, which calls this situation deflation, a bugbear behind which to hide the fact that they were playing a silly game all along, a game that only works when they are growing on imaginary money, but cannot continue when they have to pay up with physical fiat.

So, when deflation has taken hold, a baneful crisis is upon the banks. Bankruptcy is at hand. The more intelligent depositors head for the tellers’ windows and get their physical cash. Those coming later – poor devils!

Sometimes the depositors are saved from the loss of their imaginary money, by the government. They can then go on dreaming dreams. But, the same depositors will find that they are now going to pay higher taxes forever, to pay for the bailout. And if they can’t take the taxes, then the banks will print up more money, which will be worth so much less, that the holders of money are wiped out. Two and two make four, notwithstanding the banking myth of creating wealth out of nothing, forever.

The historians of the future – if some historians survive to tell the story – will marvel at the degree to which our civilization was able to delude itself with visions of imaginary money. We don’t have to go to the movies or watch TV to see illusions: we are living in an illusion, and like all illusions, this one is going to founder on the cruel reef of Economic Reality. It’s only a matter of time.


Humanity – not only Mexico – is living in a world in which a very large part of the wealth that it believes it owns, is purely imaginary wealth. We are living not in a real world, but in a world of dreams, in which we spend as if we were much wealthier than we really are. The dream will end in a great confusion.

“Swift as a shadow, short as any dream;

Brief as the lightning in the collied night,

That in a spleen envelops Heaven and Earth

And ere a man can say: “Behold!”

The jaws of darkness do devour it up:

So quick, bright things come to confusion!”

Wm. Shaks.

Hugo Salinas Price is President of Asociación Cívica Mexicana Pro Plata, A.C., ( an organization that is working for the introduction of a monetized silver coin into circulation in Mexico, in parallel with fiat pesos.

He may be contacted at