Currency Used In Mexico: A Brief History, Macro Variables Influencing The Mexican Currency Exchange Rate And Investing Options
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What is the currency used in Mexico?
The official Mexican paper currency is referred to as the Mexican Peso. In recent years the Mexican Peso exchange rate has been relatively stable due in part to the stability of the Mexican economy, the growth in foreign investment and relatively contained inflation. However, during the oil crisis in the 1970’s, Mexico defaulted on its external debt and experienced a sustained period of inflation and currency devaluation. In terms of volume of trade, it is the most traded currency unit in Latin America.
The Mexican Central Bank (Bank of Mexico) manages the Mexican currency. It carries out policy directives and is responsible for minting and printing the currency. Historically, the currency of the Mexican Peso spread its influence over North American and was considered the official currency. Even in the US it was considered to be the official currency system. The subsequent introduction of the US dollar in 1792 was issued on par with the Mexican Peso and despite the US dollar introduction the Peso was still considered the official currency up until 1857.
Factors influencing the Mexican Peso Exchange Rate
Naturally, the Mexico foreign currency exchange rate is influenced by macroeconomic and political variables. Economic growth, employment, current account debt levels and servicing requirements are fundamentals that influence the Mexican Peso. The inflation rate and interest rate differentials also play a large part. High interest rates (currently 7.25% at the time of this writing) encourage capital inflows as international traders and investors chase a higher yield. Low interest rates can contribute to keeping the currency low if it becomes the funding leg of the carry trade. The flow of funds between a country for trade and for the payment of stock and bond purchases also influences the demand and supply for the Mexican Peso exchange rate
During the past several years, Mexico has enjoyed a modest growth rate of around 3%. In 1992, Mexico signed the Free Trade Agreement (NAFTA) which shifted the economy from relying on oil exports to exporting Mexican manufactured goods. Currently, over 80% of its goods find’s its way to American shores. Products include: food, tobacco, chemicals, motor vehicles, clothing, agricultural products and commodities.
How to Invest in the Mexican Peso
The Currencyshares Mexican Peso Trust is a Mexico currency ETF that earns interest from funds deposited in Mexico. US investors/traders can purchase securities in this ETF by buying and selling units on the New York Stock Exchange.
Everbank also have a range of currency products which are designed to earn interest with additional upside exposure to a rise in the Mexico foreign currency exchange rate. The Worldcurrency CD offers 3,6,9 and 12 month terms on deposits and is FDIC insured for bank solvency. The Worldcurrency Access deposit account allows you to earn interest and potentially benefit from appreciation in the Peso versus the US dollar. Other products providing exposure to the Mexican Peso exchange rate include: the Geographic CD, Investors opportunity CD and Petrol CD.
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