Soaring peso inconvenient to some but a quadruple whammy for economy

Mike might be saying to his San Diego pals on their annual fishing trip to Ensenada, “Geez guys, the Corona’s gotten a lot more expensive this year.”

Sally might be saying to Harry in their Ajijic pied a terre, “Jeez, our pensions don’t seem to go as far now as they used to.”

Mike and Sally are both correct.

On or about April 1, 2020, generally reckoned as the start date for the pandemic, the interbank dollar exchange rate stood at just under 24:1, having flirted with the round number of 25:1 only a few weeks earlier. As this is written the rate has dropped to less than 20.

It may be the invisible hand of Adam Smith in the free market. It may be, as currency traders say, a dirty float, with a policy finger on the scale from Mexico’s central bank. It may be a Faustian bargain with the U.S. to reduce emigration from zero population growth Mexico. It may be a nutrition police op to reduce Mexico’s waistline.

Or it may be all of the above.

Mike, Sally and Harry are annoyed, even inconvenienced by the 20% erosion in the value of their dollars. But the recipients of remittances from sacrificing Mexicans working in the U.S., Canada and Europe may be devastated by the roughly four-peso-per-dollar plunge in the purchasing power of the money sent back home.

It’s a triple or even quadruple whammy to an economy already struggling with loss of employment, a disappeared tourism sector, and low oil prices.

To reduce the situation to Exchange Rates for Dummies: a higher value for a country’s currency stimulates imports, penalizes exporters, hastens capital outflows, and with an expected $36 billion a year in remittances, a four-peso difference puts billions of kilos’ worth of fewer tortillas on the tables of Mexico’s hungriest.

Where are exchange rates headed? Even Don Quixote wouldn’t tilt at that windmill. But he would certainly pay attention to wind speeds.

The author, a former bank CEO, has an MBA from Harvard and has worked in Ecuador, Peru, Guatemala, Venezuela, Argentina and Mexico.

Have something to say? Paid Subscribers get all access to make & read comments.
Cuauhtémoc Cárdenas appears with Porfirio Muñoz in the Mexico City Zócalo in 1988, during the founding of the PRD party.

Cuauhtémoc Cárdenas, who helped end decades of one-party rule in Mexico, dies at 92

4
A three-time presidential candidate and co-founder of the PRD, he was widely believed to have won the 1988 presidential election, before becoming Mexico City's first elected mayor.
Presdient Sheinbaum shares a video of Cuauhtémoc Cárdenas at her October 29 press conference

Sheinbaum and cabinet pay tribute to Cuauhtémoc Cárdenas: Thursday’s mañanera recapped

0
Senior officials honored Cárdenas, the late opposition leader who challenged the PRI’s grip on power, while Sheinbaum blasted Mexico’s electoral chief, who resigned this week amid corruption allegations.
Governor Lemus

Jalisco governor details US $1.3B investment in Guadalajara’s water infrastructure: Wednesday’s mañanera recapped

8
Jalisco Governor Pablo Lemus headlined the president's Wednesday presser to announce a "historic agreement" between state and federal authorities to clean up the Guadalajara metropolitan area's water supply after months of escalating protests.
BETA Version - Powered by Perplexity