The Mexican Peso Crisis Essay

On April 1, 1991, Argentina’s Congress, with Domingo Cavallo as Minister of Economy, enacted the Convertibility Law (or Ley de Convertibilidad) legally adopting the currency board (Hornbeck, 2002). This legislation essentially pegged the Argentinean peso to the U.S. dollar. The government guaranteed the convertibility of the peso to U.S. dollar at a one-to-one exchange rate, limiting the printing of pesos to only those necessary to purchase dollars in the foreign exchange market. Thus, the central bank was required by law to hold foreign reserves to cover its peso liabilities (Hanke and Schuler, 2002). With this fixed exchange rate, the Argentinean government was hoping to preserve the value of their currency and stabilize inflation. The peg was initially successful, as it cured hyperinflation that occurred at the end of the 1980s and provided price stability needed for economic growth in the early 1990s. However, by the late 1990s,

According to the Washington Post, Mexico's economy has totally declined. The values of their peso have decreased radically against the U.S. dollar, growth rate has

Some background facts about Mexico: The place of advanced Amerindian civilizations, Mexico came under Spanish rule for three centuries before achieving independence early in the 19th century. A devaluation of the peso in late 1994 threw Mexico into economic turmoil, triggering the worst recession in over half a century. The nation continues to make an impressive recovery. Ongoing economic and social concerns include low real wages, underemployment for a large segment of the population, inequitable income

Between the 1940’s and the 1970’s, Mexico’s economy had been flourishing. Their inflation was at a good range and their debt was low. With the discovery of petroleum, Mexico

The foreign currency chosen in the comparison against the U.S. Dollar is the Mexican Peso (MXN) for the years of 2005 to 2010. The Mexican Peso has had a history of periods of stability that have been followed by periods of inflation and devaluations. In 1993 the Bank of Mexico introduced a new currency, the “new peso” which brought more stability to the economy. There was more demand internationally for Mexican stocks and treasury certificates known as Cetes, this kept the New Peso at a stable level of about 3.1 for most of 1993. After briefly reaching 11.50 to the dollar in the late 1990’s, the peso had several years of ups and downs, gaining to less than 10 to the dollar just before the global economic crisis of 2008. Since that crisis

Mexico is an intriguing global economy, being one of the largest economies of the globe, yet also the host of a large portion of poor people; in the country for instance, which has given the world the richest man alive (Carlos Selim), 51.3 per cent of the population live below the poverty line (Central Intelligence Agency, 2012). IN order to better understand the Mexican economy, it is useful to look at it through two distinctive lenses, namely the savings rate through the Solow model and the business cycles.

The purpose of this report is to analyse the reasons for, the impact of, and the measures taken in response to the Mexican currency crisis of 1994-1995. The first objective is to assess the reasons for the crisis. Why did Mexico, a once immensely desirable investment destination become the bain of the international financial community following December 1994?

Before the 60’s Mexico has experience a growth in their economy that was called the “Mexican miracle” because of the growth from 3% to 4% in just few time. However, after this period of growth, what followed was decades of debt. “In the late 1960s, Latin America

In the last decade we have seen dismal economic growth of less than 2 percent per year on average. This is the worst record for Mexico in 70 years, particularly shocking when compared to double-digit growth in other developing countries. We need to quickly move onto a path of sustained growth that will increase investor confidence and provide stability for an eager workforce.

In modern times the peso has endured more or less stable against the US dollar and other major worldwide currencies. Although the peso has come under pressure from international recession that is becoming obvious in Europe, One thing that is apparent from making a approximate study of the historical information is that the strength of a currency has a direct relationship with the strength of the economy. As is apparent from the economic disaster experienced by Mexico, during the 1970s and 1980s, which is why the Mexican peso is experiencing distress. As most of the Mexican economy produces its income from exports therefore, it is suffering from a deepening crisis in the global market. On the positive side, the future of the Mexican peso is

Many changes has been presented yet, for example the devaluation of the Mexican pesos and the elevation of dollar wich means that if you want to buy one dollar it will cost you more Mexican pesos than before. This year the dollar has risen against the peso around 9.8 percent.

It is important to note, however, that Mexico’s struggling economy is not entirely the result of it’s own actions. On January 1, 1994, a trade deal promoted by US President Bill Clinton was put into effect. The North American Free Trade Deal (NAFTA) intended to “unite” the economies of Canada, the US, and Mexico by diminishing trade barriers between them, adding jobs and lessening the wage gap between Mexico and the US. The first major disaster of NAFTA occurred when heavily subsidized US corn saturated the Mexican market

October 2008, the Mexican Peso reached a record low, 14.2927, compared to the United States Dollar. Several of the Major Central Banks took the market by surprise with and unexpected Rate, sending traders to sell their publicity in emerging markets. After reaching records high in August, rumors and low liquidity forced the MXN to fall by nearly 20%. The market move accounted for 15%, 8% of that was before the market opened. The Central Bank of Mexico (Banxico) sold $2.5 billion in two days and offered an additional $400 million a day when the peso weakens more than 2 percent. The peso's intraday decline was the biggest since the government abandoned a currency peg in December 1994.

Another important factor that affected the financial sector and would eventually contribute to the development of the Mexican Peso Crisis was that the risk premium of the Mexican economy was significantly impacted by the armed conflicts that happened in Chiapas at that time. This armed conflict led to a decline in investor confidence about business in Mexico, such that there was a decline in the investment potential of the region (Mathur, 18).

Along with the large spending incurred by the Salinas administration, the Mexican economy was further burdened by the excessive consumer spending due to the overvaluation of the peso. The peso was left unchecked as devaluation of the peso would weaken the Mexican citizens buying power, causing displeasure and thus risking