Should the Mexican Silver Libertad Coin be Monetized?

Here is an interesting "throwback" idea that is being debated in Mexico. As you might know, precious metal coins have not circulated widely in the world since the late 60s/early 70s. In fact, modern theories of central banking rely on the absence of currency that is tied down to precious metals. That's because a gold or silver-backed currency is considered too inelastic to efficiently support economic growth (in other words, it would limit central banks' ability to use their modern array of monetary policy tools). Nevertheless, critics of modern central banking feel that monetary policy has become too undisciplined without the hard limit imposed by the precious metal link. So, should the Mexican Libertad become circulating currency? It seems very unlikely that any central bank in the world would be willing to voluntarily surrender any existing powers, unless it was in response to a global financial crisis - and even then every other alternative would likely be attempted first.

Here is the link (in Spanish) to the original article

http://pilotzinoticias.com/guillermo-barba/onza-plata-ahorro-los-mexicanos

Basically, the supporters of this proposal are looking for a way to stabilize the Mexican peso by tethering it to silver. My understanding of the proposal is this:

• The Central Bank of Mexico (Banxico) would determine a value in pesos for the “Libertad” silver ounce coin; and this value would be slightly higher (by a specific percentage codified in law) than the market price of silver. This price cushion would give Banxico with an assured profit in minting and placing these coins in circulation.
• If, after the coins are circulated at the legal price, the market price of silver should drop, then Banxico would keep the monetary value of the “Libertad” ounce stable. In other words the supporters of this proposal are looking to peg the peso to silver with a floor that would limit depreciation of the currency.
• On the other hand, if the price of silver increases, then Banxico would increase the value of the “Libertad” silver ounce in terms of pesos. In this way, again, the coin would remain “in circulation” and not be melted down to unlock metal value that exceeds the face value of the coin.
• This system would benefit savers because the coin would maintain its purchasing power in times of inflation, thus encouraging savings and financial responsibility more effectively than other forms of public policy.

It seems a bit unrealistic to expect that this proposal will be taken seriously because modern monetary theories really look down at these types of ideas. This is mainly because there are complications built into this construct (for example, it is sometimes macro-economically advantageous for a country to devalue its own currency). Nevertheless, it is very interesting that modern monetary policy is facing a challenge not just from cryptos (closing in from the future) , but also from sound money advocates (coming in from the past). This is a fascinating topic that deserves serious debate.