In April of 2001, it took 8.91 Mexican pesos to buy 1 US dollar. Now it takes 17.92. That’s a decline of just over 50%.
“Perverse” Currency Wars
A slide in the price of oil and a perception the US economy is relatively strong are as much to blame for the recent slide in the peso as China.
Chinese market turmoil and the renminbi’s fall to a four-year low against the US dollar risks the prospect of “perverse” currency wars, Mexico has warned.
“There is real concern that, in the face of the deceleration of the Chinese economy, the public policy response will be to start a round of competitive devaluations,” said Luis Videgaray, finance minister.
He called that prospect “frankly perverse” because copycat devaluations would leave everyone in the same position and would not really alter anything. Mexico’s peso floats freely, but the central bank has been auctioning dollars in recent months to shore up the currency.
Mexico warns “frankly perverse” copycat devaluations won’t accomplish anything.
However, Mexico should take this under advisement: History shows it’s equally perverse to expect currency intervention actions to work.
Mike “Mish” Shedlock