New-York tribune., 1918-02-04
Mexico sMonetary.System
Needs Lar ger Gold Reserve
Adequate Provision Must Be Made for Redemption of
Lighter Weight Silver Coins Now Proposed
Says Professor kemmerer

the peso fuerte, fractional silver coins,
and minor coins of nickel and copper.
Unless the supplies of these coins arc
strictly limited and kept within the
bounds of trade needs, they will de-
plete the country's gold reserve, and
denude its circulation Of gold coin.
Great care must be taken that tiduciary
coins arc not issued in excess. This
caution gives rise to the third require
ment Of the gold standard, namely,
proper regulations to adjust the supply
of tiduciary coins to trade needs"
Reserve Must Be Adequate
The fourth requirement for the main
tenance Of the parity of Mexican silver
coins with gold, according to Professor
kemmcrer, is the establishment of an
adequate gold reserve, which may be
called "thc gold standard reserve"
"a gold standard reserve in a coun-
try like Mexico" he says, (which has
Il large circulation of tiduciary money
performs two important functions, the
second Of which is essentially the
corollary of the first. They arc Cd
the automatic adjustment Of the cur
rency supply to the demands Of trade
and GU the creation and maintenance
OF public confidence in the fduciary
currency.
tlon i'll serving as the medium for the
exchange Of goods and services; di-
rectly, in passing from hand to hand
and indirectly, in constituting bank re-
serves which support bank deposits, the
titles OF which pass from hand to hand
; IN the form of bank checks. In a. given
state OF banking and credit develop
mcnt, and with given amount of
business, country needs a certain
n fn,. -.
IT'S exchanges at a price level which is
in equilibrium with the price levels of
competing countries.
III country, say Mexico, has less
money than is needed. the law Of sup
ply and demand will operate to depress
prices below the price levels of nearby
countries. and, temporarily. to raise
short-time interest rates, with the re-
suit that, since money is more valuable
IN Mexico than, say, in the United
States. exchange rates in Mexico on
New York will rise, and gold will flow
toward Mexico Gas it is tending to do
at the present time) until an equi-
llbrlum in the price levels of the two
countries is again reached.
"1f, on the other hand, there is too
much money in circulation relative to
trade needs-a condition which may
result from an excessive issue Of
money or from decline or depression
In business-the law Of supply and de-
mand again operates and makes the
money which has become relatively re-
dundant Il. e.. redundant as compared
with trade needs) cheap. In other
words, the law Of supply and demand
operates to force up prices Of sensitive
commodities and, temporarily, to de-
press short-time interest rates, with
the. result that exchange rates turn
against the country, and the excess
money seeks an outlet in expectation.
Money, like everything else, seeks the
best market. But fiduciary silver money
cannot be exported, for under normal
conditions it has a much higher value
at home as money than it has abroad
as silver. To melt it down for exporta-
ton involves loss. Accordingly, there
fore, it is only gold coin or its equiva-
lent. gold bars--the money Of interna-
tional trade that flows out Of the
country at times when the currency in
circulation becomes redundant. If there
is not such an outflow of money in
times OF currency redundancy. the in
creasing excess Of the currency supply
over trade needs depresses the value Of
the monetary unit and ultimately re-
suits in the breakdown Of the gold
standard. 1t is only through the auto
matte adj justment Of the currency sup
P'H W tHe ueHiduUS OIL ITduc LnaC the
gold parity can be maintained; for
relative excess means depreciation and
relative scarcity means appreciation"
Advocates 35 Per Cent Reserve
Mexco's gold reserve, in Professor
kemmercr's. opinion, should be suffi
cicnt to provide for the absorption
through redemption of any silver coin
in circulation which may be rendered
excessive BY the usual seasonal 1uctua
tions in business. 1t should be large
enough to do this, and, in addition, to
afford a reasonable margin Of safety for