Home > Uncovering Mexico > Archives > 2008 > October > 09 > Entry
Death of the Superpeso
While higher interest rates in Mexico had propped up the peso for most of the year, the financial crisis in the U.S. has turned the greenback into a “safe haven” for investors, pumping up its value. And in this shaky economic climate, risk adverse investors have been leery of the peso.
So Mexico has decided to flood its banking system with dollars, auctioning off $2.5 billion to Mexican banks at lower exchange rates. The gambit appeared to work yesterday, bringing the dollar down to just over 12 pesos. The government plans to continue its daily dollar auctions as long as the peso continues falling.
Mexican officials remained upbeat Wednesday, insisting that a crisis is not on the horizon. Finance minister Agustin Carstens told reporters: “Our currency is for now, I would say, one of the best options to invest in.”
Mexicans should hope so - a strong peso means cheaper imports and lower prices for consumer goods. The opposite means more strain for this now-struggling economy.
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By eljefejesus
October 12, 2008 6:33 PM | Link to this
Just like China keeps its currently low on purpose, the peso is at a good level now, one that keep mexican goods affordable and workers in mexico employed. A strong peso makes mexican-manufactured goods less competitive.
in the last several years it has moved little from 11 to the dollar and it is now staying around 12 or 13 to the dollar. No big deal.
The news outlets are looking for stories, and the more respectable and accurate ones will report that meico’s currency devalued more during the 1994 peso crisis.
Few point out that the peso has stayed closed but floating around 11 for years now, just as it still dues even during a crisis that has halted trading in Brazil and Russia and made the Indian rupee values really scare investors.
Not that the peso didn’t over apreciate a bit temporarily due to the high interest rates set by Mexico’s independent central bank. They were fighting inflation and now they have a little less to worry about on that end.
The super-peso is a story. The floating peso is an effective reform that continues to work as it has over the last 13 years after they switched to it after the 1994 peso crash. The floating peso keeps the nation flexible during tough times like this. For stability, the Mexican central bank has always and continues to sell US dollars and to buy us dollars. The only difference now is that the crazy week around the world has pressured the central bank to maintain stability so much more that it is still barely selling under 10% of its reserves after a sharp currently appreciatio… look at what other countries have had to do.
I agree with the story, no more superpeso, but I would even go a little further and squash that “mythology” by saying that it is a superpeso that never was. Just the normal swings of a modern flexible exchange rate by a nation with a strong position of having very high foreign reserves.
Mexico and Brazil are a good example for other latin american nations to follow in keeping a high level of foreign exchange reserves.