The Mexican Peso Crisis

This triggered the worst banking crises in Mexican history (1995-1997) and the largest depreciation of the currency in one year; from 5.3 pesos per dollar to over 10 pesos per dollar between December 1994 and November 1995 to cause the most severe recession in Mexico, and therefore ushered in the Tequila

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.

According to Google Dictionary.com International Economics is a money-based study of how one nation is bought by another nation and how the currency of one nation is exchanged for the currency of another nation to pay for this production.

The setting of the exchange rate in Australia has shifted over time, from a pegged fixed rate in 1976, to a managed flexible rate and finally in December of 1983 moved to a floating exchange rate whereby the value of the Australian dollar was set by the market forces of demand and supply. The exchange rate is simply the price of Australia's currency expressed in terms of another country's currency. This essay will outline the ways in which initially a fixed rate and flexible peg were determined, aswell as the impacts of domestic and international influences on the value of the floated dollar.

In the 1990s, Argentina was dipping into a recession and recovering from nearly astronomical inflation rates of about 200% per month in the 80s. The government's idea to prevent this from continuing came in the form of the Convertibility Plan and the creation of the currency board. This board was given the task of pegging the peso to the US dollar, and fixing the exchange rate by "[maintaining] dollar reserves, and [being unable to] expand the supply of pesos without an equivalent increase in the dollars that it holds" (MacEwan, 2001). Though not immediately, the International Monetary Fund supported Argentina's Convertibility Plan because at first, the effects seemed beneficial. It also seemed to be a different and more solid way of solving past financial issues, and in light of the Mexican Crisis, the IMF was thrilled to see Argentina "[use the] crisis to press ahead with needed measures, in particular rectifying the situation of provincial banks" and "[tighten] fiscal policy" (Allen, 2003).

In the middle of the last year, the dollar overflowed the 18 pesos and all of the cities turned into panic. This caused, in Mexico city, people to start talking about the possibility of Mexico adopting the dollar as currency.

Today, Mexico is the twelfth largest economy in the world. Mexico’s economy has expanded and Mexico is a signatory to major deals, such as North American Free Trade Agreement and Trans-Pacific Partnership. Additionally, Mexico is a member of the Organisation for Economic Cooper and Development (OECD). Mexico is an active o member of the world’s economy. It is important to realize that the country has made significant economic progress. However, Mexico faces trouble as it attempts to become a developed economy. In this paper, I will outline the economic history of Mexico and its transition towards neoliberalism from import substitution and how the government plays a smaller role in the economy. I will look

To conclude, an advantage of having a president with minimal restraints is that he can govern the country without the obstruction of the Congress. He can pass a bill or reform more easily. His run in the office will be more efficient, contrary to the hardships that US president is currently facing.

In spite of the Mexican economy’s unprecedented macroeconomic stability, which was reduced inflation and interest rates to record lows and has increased

No other countries economy is impacted as severely as Mexico based on the financial outlook of the United States. The US economy, government and election process controls the direction of the Mexican peso. This is obviously the case of the dog wagging the tail.

Among the examples we find the shock known as Black Monday from 1987; the so called lost decade of Japan 1990; Black Wednesday from 1992; the Mexican peso crisis (also known as Tequila effect) from 1994; Asian Crisis (or Asian Flu) that began in 1997; the Russian Crisis (also called Russian Cold) from 1998; the Brazilian Crisis (otherwise Brazilian Sneeze) from 1999; Dotcom Crisis (alias Nasdaq Rach) from 2000; Argentinean crisis from 2001, and of course, the present crisis, which began in 2007, also known as the Suprime Mortgage Crisis, Banking Crisis, Sovereign Debt crisis or just the Global Financial Crisis. (Kindleberger and Aliber, 2005) from the dawn of the civilization until 1997, identified a total of 39 local and global economic crises, all crossing the borders of a single country. Similarly (Reinhart and Rogoff, 2009) between 1800 and 2008 identify in 138 countries a total number of 783 banking crises. Over the past century the number of crises rose with 300%, and this number is only referring to banking crises.

Over the next couple of weeks Mexico’s reserves dropped nearly $4 billion, to $121⁄2 billion. The reasons for renewed pressure on the peso in mid-December are unclear. Banco de Mexico cites several factors,  the negative effects of higher real interest rates on financial intermediaries and debtors,  market worries that the current account deficit would be difficult to finance in 1995,  a breakdown in negotiations with the rebels in Chiapas. It is also possible that leaked rumors of changes in exchange rate policy set off another round of capital flight. In any event, over three days Mexico lost another $1.5 billion in reserves.

3. The largest form of capital inflow was the purchase of bonds—in many cases, government bonds. Over the five-year period $43 billion came into Mexico for this purpose. A large portion of these securities had short terms, often maturing in one to three months. Of the three forms of capital inflow, this last one probably posed the greatest danger to the exchange rate peg. If anything caused foreign investors to decide to pull out of Mexico (with its quasi-fixed exchange rate), investors could simply have taken their money out of the country as their securities matured, putting tremendous pressure on the government’s reserves within a matter of weeks.

The 1994 Mexican Peso Crisis was a relatively short crisis. The economic policies of the Mexican government needs reviewing before going into the devaluation of the peso and the crisis itself. The President before the Mexican Peso crisis was Carlos Salinas during his administration Mexico continued a series of reform started by previous administrations in which they restructured their foreign debt, reduced their inflation rate, cut trade barriers and privatized various government institutions. Mexico had reduced tariffs on imports and stabilized their inflation rate because of their exchange rate policies. The deregulation or lack of proper regulation and changes in their monetary and fiscal policy can have a great effect on a countries economy. The beginnings of the problem started when Mexico privatized their banks. Privatization is when “a country divests itself of the ownership and operation of a business venture by turning it over to the free market system (Eun, Resnick 14).

The Mexican peso declined as losses in bonds supported by United States subprime home loans led investors to avoid higher-yielding securities. The peso slid 1.6 % in 2006. Defaults on bonds supported by United States subprime mortgages triggered $80 billion in write-downs and losses at the biggest banks and securities firms that year. In 1990 one U.S. Dollar exchanged on average for 2.8 Mexican pesos. By 2007, the peso had fallen against the dollar by almost 75 %, with an average exchange rate in 2007 of 10.9 pesos per dollar. Mexican products did not become cheaper compared to US products over that 17- year period nor did the price of Mexican products expressed in terms of U.S. Dollars fall by 75% because Mexico had much higher inflation than the United States over that period. In fact, the relative price of U.S. and