Advantages and disadvantages of the falling peso

The drop in the value of the Mexican peso – trading this week at around 16 to the dollar – is boosting exports and tourism, but it is also harming local businesses, analyst Rafael Carrero told EFE.

“Devaluations always have a double effect. For example, they increase tourism and boost trade, but they hit the country’s domestic companies hard,” Carrero, director of currency trading at the Actinver Group, said.

The Mexican peso was trading Monday at 16 per U.S. dollar, the lowest level in three decades, and the currency is down 8.4 percent against the greenback since the beginning of the year.

The depreciation comes amid a weak global economy and concerns about a rise in U.S. interest rates, a move the Federal Reserve has been weighing for some time.

The exchange rate “will remain at high levels” after breaking through the 16-peso barrier and will “stick” there at least for a few days, Carrero said.

A weak peso spurs tourism and exports, the currency trader said.

The weak peso will benefit Mexico’s large auto industry, which exports more than 80 percent of its output, Carrero said.

But the fall in the value of the peso will have a negative impact on domestic commerce and imports.

Foreign products “become more expensive” and this has already prompted many Mexico-based companies to look for “cheaper local products” in recent months, Carrero said.

The decline in the peso also affects the remittances that the millions of Mexicans living in the United States send home.

Last year, emigrants’ remittances were Mexico’s No. 2 source of hard currency, trailing only oil exports and totaling $23.65 billion, an 8 percent increase over the 2013 figure.

“From the moment the exchange rate falls, Mexicans are paid 8 percent more,” the currency trader said.

Carrero noted, however, that during another period of depreciation in the peso’s value several years ago, remittances “practically adjusted” to the devaluation.

In other words, he said, “Mexicans overseas adjust for the devaluation and send the same amount in pesos.”


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