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When five is more than 50,000

Mon, Nov 5, 2012

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I save stuff – old coins, letters, stamps, campaign signs, newspapers and anything else that seems interesting. I enjoy my unintended and untended “collections,” but it’s dismaying to think that my spouse and/or kids will have to sort through all this junk when I shuffle off this mortal plane.

Hoping to dispose of some stuff, I emptied out a basement drawer– and found treasure!

Crumpled in a corner was an undated Mexican 50,000 peso note. From a recent trip, I knew that the present peso/dollar exchange rate is about 12.5 to 1, so 50,000 pesos would be…$4,000. Could I be looking at $4,000 big ones? Oh, happy day – but it wasn’t to be.

Severe inflation had hollowed out the peso during the ’70s and ’80s. Once the currency stabilized, the government called in the large-denomination notes, and replaced them with smaller denomination notes of equal value. Each new peso is worth 1,000 old pesos, so my 50,000 peso note is worth about four bucks…oh, well.

I also found a few Mexican coins in the drawer. Talk about valueless! One, dated 1948, had a face value of five pesos. Divide 5 by 1,000 and it’s worth .005 new pesos – might as well throw it away, right?

That’d be a big mistake. Forget the face value — it’s actually worth about $30. It contains 30 grams of 900 fine silver, or .868 troy ounces of pure silver. By comparison, an American silver dollar has slightly less silver content, weighing in at .773 troy ounces.

My drawer full of junk nicely illustrated the “store of value” theory of investment in precious metals.

Silver and gold fluctuate in value, as do all commodities. Had you bought silver at its historic peak of $50 oz. in 1980, you’d still be in the red. Similarly, had you bought in 2005 at $5oz, you’d be looking at a 600 percent gain.

Had your Mexican grandfather saved a thousand five-peso coins and left them to you, you’d have $30,000. Had he converted his coins to paper money, and stuffed the dough in the mattress, you’d have nothing but a used mattress.

Similarly, if your American granddad had saved a thousand bucks, and left you 10 crisp hundreds, you’d be happy – but if he’d converted those hundreds into silver dollars in 1948, you’d be ecstatic.

Severe inflation can destroy savings, destabilize countries and ruin lives.

That’s why conservatives fret about the national debt and the prospect, however remote, that the dollar might meet the peso’s fate. I’m no economist, and I have no idea what the price of silver will be tomorrow, next month or 50 years from now. I suspect that it’ll be worth something, though, so I’m going to add to my nascent collection of five peso coins. Maybe they’ll still be in my junk drawer decades hence, a cheerful (and tax-free!) discovery for my heirs, and I’ll leave ‘em the 50,000 peso note as well.

Just as a reminder, I guess…

 

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