A few months ago, the Mexican government stated how they had created a contingency plan to deal with the election of Donald Trump. Unfortunately, it appears this plan is not working, as the local economy is still taking a beating. Despite best efforts by the Mexican central bank, the peso is still losing value at an alarming pace. Fears over Trump’s plan to build a wall and getting rid of the trade deal between both countries have many people concerned right now.
A Dark Time For The Mexican Economy
With the inauguration of President-elect Donald Trump drawing closer, the world is bracing itself for a financial shockwave. More particularly, the Mexican government is doing everything they can to prevent the Peso from plummeting further. So far, their efforts have been in vain, and it looks like the downward trend will continue over the coming weeks.
This Thursday, the country’s central bank attempted to keep the Peso exchange rate afloat artificially. The bank sold dollars to international investors, which should have reduced the decline in value of the peso. Things did not work out that well, though, as the market remains very volatile, and future losses are only days away. Moreover, all of the gains made by this move were erased in mere hours.
If the Mexican peso were to decline further, capital flight would be the unavoidable outcome. Investors and consumers will flock to other currencies or alternative investment vehicles to hedge against future volatility. This would completely destabilize the local economy, and it is doubtful the country would ever fully recover from such a drastic event. It is evident the next US President can spell the death sentence for Mexico’s economy if he wants to.
Ever since Donald Trump won the US Presidential race, the Mexican Peso lost over 13% in value. Right now, one USD is worth 21.5 pesos, although that number could increase to 25 pesos if things do not turn around quickly. Banxico’s two previous internet rate hikes haven’t had any positive effect on the dwindling exchange rate either.
If foreign investment in Mexico dried up over time, the country would be in all sorts of trouble. Foreigners hold nearly US$100bn worth of Mexican government debt, but they can pull out their money in a heartbeat. The weak economy is not making the market look attractive right now, and it seems to be only a matter of time until the local economy collapses.
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