This article is written by Austin Garcia
In the realm of global economics, the Mexican Peso, often dubbed as the “super peso,” has recently emerged as a dark horse. Despite being overlooked in the past, the Peso has now become a favorite among investors. In 2023, it outperformed all other currencies, reaching its highest real effective exchange rate since 2005, and making investors reconsider their skepticism.
The Peso’s journey began as the silver 8-real coin, based on Spain’s real currency. It was in circulation until the mid-19th century when centavos coins, worth one-hundredth of the peso, were introduced. These coins remained in circulation until the mid-20th century, albeit with decreasing gold content. In 1993, due to hyperinflation and currency devaluation following Mexico’s default on external debt in the 1980s, Mexico introduced the nuevo peso, replacing the old peso at a 1:1,000 ratio.
The Peso has experienced significant gains in recent years, thanks to record remittances, nearshoring, and increased investments. It saw its largest annual gain against the dollar since 2016, climbing 25%. Record-high interest rates have sparked a 40% surge in foreign direct investments, positioning Mexico as a top manufacturing destination for global companies. Nearshoring with the US has reduced Mexico’s economic dependence on geopolitical rivals like China. Between 2022 and 2023, Mexico’s goods imports to the US increased by 5%, reaching over $475B, surpassing China as the leading US importer for the first time in two decades.
However, not all is rosy. Despite the growth, the Peso’s performance pales in comparison to other rising currencies. The slow growth in the 1st quarter can be attributed to a drop in manufacturing and agriculture, only partially offset by services, and the looming presidential elections. Historical data shows that the value of the Peso tends to weaken by 5%-7% before presidential elections in Mexico. The upcoming electoral races in both Mexico and the United States will undoubtedly exert pressure on the currency. However, despite these challenges, the Peso’s performance is expected to remain among the best within emerging markets, as it typically rebounds after a few days. The question remains: How will the Peso fare amidst slowing growth and the upcoming Presidential election? Only time will tell.
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