A Mexican bearer bond is a bank note issued in Mexico and used as one might use cash through the 1930s. The bank notes are collectible, but otherwise valueless. For example, if a person came into possession of a Mexican bearer bond valued at $250 in gold, it could not be cashed at a Mexican bank and is no longer legal tender in Mexico. To understand why they're no longer valuable, first understand how bearer bonds work.
Bearer Bonds Defined
A bearer bond is a financial instrument that may accrue interest in two ways. The first is by coupon redemption. The bond has detachable coupons that can be cashed at the issuing authority on or after a specific date. The other is by maturation. After the bond matures, it can be redeemed for the amount stated. Bearer bonds, as the name suggests, can be paid to whomever presents the bond for redemption. Registered bonds, which are more common investments, are attached to a person's name.
Understanding Bond Calls
A bond is, in some ways, like a loan to a corporation or government. The purchaser gets the bond at a very specific, low interest rate. For example, a $50 U.S. Treasury bond will cost $25 and take 30 years to mature. After that date, the investor can cash in the bond. Eventually, a company or government might issue a bond call, saying that all outstanding bonds purchased in a certain year be returned. The issuing authority will give a deadline for cashing in a bond. If the deadline is missed, the bond is worthless.
Mexican Currency Devaluation
In the case of Mexican bearer bonds, several series of bonds are no longer redeemable because they were issued by a now-defunct government. Others were subject to calls. Bond used to fund the Mexican-American War were nullified as were bonds issued before 1930 because of the worldwide depression. All of these factors left a significant number of valueless bonds left on the market. Many of the bonds were issued for gold. There are no remaining Mexican bearer bonds on the market that are redeemable. They do remain as collector's items.
Potential for Scams
Mexican bearer bonds have become prominent fraudulent investment opportunities. Brokers are selling them at face value or even at a significant markup even though no Mexican bank will accept or cash them. Depending upon the condition, Mexican bearer bonds are sought by currency collectors who often pay significant amounts for them. For unscrupulous dealers, the collector's market bolsters the claim that the bonds are valuable in themselves.
Tony Russo has been a general assignment reporter and an editor for weekly and daily community newspapers since 2004. He is a business blogger for several regional websites and produces a weekly news and entertainment podcast.