From Pesos to Dollars: The Intermestic Relationship Beyond the U.S.- Mexico Exchange Rate
The ties between Mexico and the United States run deep. As such Mexico is particularly susceptible to commotion in the U.S. economy. Since 1994, Mexico has maintained a floating exchange rate, meaning that the value of its currency is mostly determined by market demand, and on Thursday the value of the peso plummeted to 14.20 pesos to the dollar.
Whenever the value of the peso decreases relative to that of the dollar the consequences are felt on both sides of the border.
On one hand, if you are earning dollars, you can suddenly buy more pesos with your same dollars. Living in the United States, you don’t usually buy pesos directly, but American businesses that buy Mexican products can now buy them more cheaply, passing on the savings to the consumer.
On the other hand, if you are a Mexican exporter to the United States, your products have suddenly become cheaper, allowing you to better compete against American domestic producers, and other global exporters, thus increasing profits and helping Mexico’s economy develop.
However, only about 30% of Mexico’s GDP comes from exports, and individuals outside the export sector of the economy are likely to see prices for American goods increase steadily. Although it is difficult to tease out the consequences of such fluctuations in exchange rates, the integration of our economies is undeniable.
Thanks to Dante Perez for his contributions to this post.
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