Although the Mexican Peso is currently gaining strength, that was not always the case. Originating during Spanish rule, the word “peso” means weight and was meant to refer to the gold or silver coins that were used as far back as the 16th century. Eventually, paper currency was added to the coins, and today the Mexican Peso is the 12th most traded currency on the planet, the third most used in the Americas and the number one form of “dinero” (money) in Latin America.

The Peso has an interesting history, and it is one that involved what was termed the, “Mexican Peso Crisis” of 1994, with the sudden devaluation of the peso in December of that year. This crisis is also known in Spanish as “el error de diciembres” or as “The December Mistake”, was a term coined by the then outgoing president Carlos Salinas de Gortari, in response to incoming President Zedillos immediate and sudden reversal of the tight currency policies of the Salinas de Gortari administration.

The roots of the crisis are generally thought to be grounded in the poor decisions and corruption of the Salinas de Gortari government, which placed severe stress on Mexico’s finances. Concerns about the stability of credit being offered by Mexican banks, high risk loans and low lending standards combined to create additional turmoil. A period of hyperinflation from 1985 to 1993, low oil prices and high debt loads, along with too much spending, sent the economy into real crisis.

In December 1994, the New Peso was introduced as Mexican reserves all but disappeared. The government had to move quickly to boost the value of the Peso. At that time, the exchange rate went from 3.4 to 4.1 for the New Peso to each $1.00 American money. As pressure on the new money mounted, the administration was forced to stop the currency float, which caused the exchange rate to drop to 5.3. As 1995 began, the New Peso continued to lose value. By January 1996, it had dropped to 7.4.

Today, this Mexican Peso is still called the “Nuevo Peso” or New Peso and is worth twice as much as the old pesos, which are becoming scarce. The peso hit a bottom low of 15.25 on the spot market on February 27, 2009. Federal Reserve experts have called it a “flight to safety” and nothing more. Mexican spending in the United States has increased purchasing power today, thanks to a stronger peso. Conversely, this equally increases the costs of Americans who spend in Mexico.

Since August of last year, the Peso has begun to strengthen and predictions for the future are optimistic that it will continue to do so. Economic experts believe that good Mexican fundamentals, are improving the financial health of the country. Good investments by foreign companies in Mexican industrial plants continue to increase, thanks to high fuel prices that raise the costs of shipping Asian products to the United States. The prognosis of the future would seem to favor a stronger Mexican Peso in years to come.

Mexican Peso ETF

• CurrencyShares Mexican Peso Trust (FXM)- CurrencyShares Mexican Peso Trust is designed to track the price of the Mexican Peso net of Trust expenses, which are expected to be paid from interest earned on the deposited Mexican Pesos. (source)

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