Mexico’s peso has had an assorted history against the US dollar. Periods of stability have been followed by periods of great turmoil —and resulting devaluations— followed by rallies and stabilization.
An irony —economists would say corollary— is that the only times the peso has gone through periods of appreciation against the dollar has been in the decades when it was allowed to float freely, with no exchange controls in place, few or no price controls in the domestic market, and no restrictions on withdrawing capital or profits.
From controlled exchange rates to free-floating currency
Over the last seven decades or so, different governments have applied different measures for managing the peso’s exchange rate, depending on their perception of the country’s needs at the time.
From 1954 to 1976, the Mexican peso was held at a fixed rate of 12.50 (old pesos) to the US dollar.
A devaluation in 1976 was followed by a long period of different exchange controls which included outright restrictions at times, multiple rates at others, and a system of ‘exchange rate bands’ that allowed a steady but gradual depreciation of the currency.
A continuing series of devaluations through the late 1970s and 1980s —some major, some controlled— culminated in an economic blowout in December 1994, when the country’s reserves became depleted following a year of capital flight, and that led to a free-floating exchange rate that has been maintained ever since, with the central bank only intervening in times of distress in markets.
Mexico’s peso from the late 1990s to 2010
After briefly reaching 11.50 to the dollar in the late 1990s, 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 originated in the US, its effect on Mexico was much greater than it was on other countries which have fewer (or smaller) trade and investment ties.
The currency’s value buckled in August of 2008, falling from 10 to more than 15 pesos per dollar in March of 2009, as investors sold Mexican stocks and bonds, often for cash to change back to dollars to meet other obligations.
The decade from 2010 to 2020
Mexico survived the 2008 crisis largely intact, and by October 2010 the peso recovered about half of its lost value, trading at around 12.50 to the dollar.
From 2011 to 2014, the currency stabilized and traded inside a range of 13 and 14 pesos to the dollar; but in late summer of 2014, the peso began to slide again, and in November of that year it broke the psychologically significant ‘20-to-1’ level.
The peso continued to weaken throughout 2015 and 2016 and, after briefly touching a new low of 21.50 in January 2017, the peso began a robust rally, and by September 2017 it was trading at around 17.60 on foreign exchange markets.
The currency then stabilized again and from 2018 to 2020 it traded in a range of 18 and 20 pesos to the US dollar.
Spring of 2020 through 2023
Soon after the World Health Organization declared Covid a pandemic on March 11, 2020, the Mexican peso began to experience a rapid decline in value against the US dollar—briefly touching 25 pesos by the end of March 2020.
However, in late spring the peso began to quickly recover its poise, and by November 2020 the currency stabilized again to trade in a range of between 19 and 20 pesos to the dollar—and remained remarkably stable in that range during the two difficult years that followed.
In 2023 the peso has continued to strengthen against the dollar, repeating a similar pattern it displayed between 2014 and 2017; in late February the currency closed below 18, and traded in a range between $16.68 and $17.03 between June and August.
This year’s rally got the term ‘Super Peso’ trending on social media in response to the currency’s strength, although a weak US dollar is also contributing to the peso’s recent gains.
This chart illustrates the roller coaster ride—select ‘all years’ to see the trends since 1994.
What influences the value of Mexico’s peso
As a free-floating currency on world foreign exchange markets, the peso’s value fluctuates from day-to-day (and even intra-day), and although it’s the large, multi-million-dollar transactions by banks and big corporations that significantly influence the rate, macro-economic indicators including inflation, exports, oil prices, foreign currency remittances (mostly US dollars sent to Mexico by people from abroad), and international tourism all contribute the peso’s current value.
Understanding currency pairs
Most of the peso trading is done against the US dollar, and rates vis-à-vis other currencies such as the British pound, the Canadian dollar or the euro, are simply a combination of the two rates, or “currency pairs” as they are known in the trading world.
Thus, if the Canadian dollar rises relative to the US dollar, it would also be more expensive to buy Canadian dollars with pesos, unless the peso had also risen against the US dollar. There are no fixed rules about that. Sometimes the peso can appreciate while others depreciate against the US currency, other times they will move in the same direction. It can depend on many different things. Occasionally the reasons for the change are local, and other times they are global.
Predictions for the value Mexico’s peso
There are varying views on whether the peso is over- or under-valued at the present exchange rate. Different economists, including those at the Bank of Mexico, use different criteria to calculate what they believe a currency’s fair value ought to be, and therefore come up with different results and publish those estimates accordingly.
As we mentioned in the 2023 peso commentary article, economists are predicting that the peso will weaken again, with the median estimate for the peso to end this year around 20.80 to the dollar; but the simple truth of the matter is that no one can foretell its future value with any meaningful degree of precision—and a glance back at previous years’ estimates by the same groups of ‘experts’ confirms that.
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