The Mexican Peso Crisis

Paper Summary:

The paper reveals that the cause of the currency crisis was because the Mexican peso was pegged to the dollar and this type of fixed exchange rate limited investment in Mexico. The paper relates that the only natural thing to do was to devalue the peso. The paper explains that the problem was that the political and security situation in Mexico was not necessarily one that would encourage foreign investment. The paper explains the 20 % devaluation, intended to take place some time in December 1994, turned into a 50 % devaluation of the peso due to pressure from investors and a subsequent significant economic crisis. The paper examines the Mexican government's response to this currency crisis, "tesebonos", and shows the gains from this external trade growth.

From the Paper:

"The response to this currency crisis that the Mexican government used was the so - called "Tesebonos", "a short-term security whose principal was indexed to the dollar" . Practically, these were a form of insurance or governmental guarantee for the foreign investors. This was type of security guaranteed the foreign investor that the investment he made in Mexico would not be affected by the peso devaluation and that it would still be calculated with direct connection to the US dollar."

Sample of Sources Used:

• Bradford DeLong; Christopher DeLong; Sherman Robinson. The Mexican Peso Crisis. Foreign Affairs. May - June 1996. On the Internet at http://www.j-bradford-delong.net/Econ_Articles/themexicanpesocrisis.html
• Obstfeld, Maurice. International Macroeconomics: Beyond the Mundell - Flemming Model. December 2000.

More papers on The Mexican Peso Crisis:

• Research Paper # 112152 : "The Economic Impact of the Mexican Peso Crisis"
• Analytical Essay # 22145 : "The Devaluation Of The Peso and Its Effect On The Mexican Worker"
• Research Paper # 66156 : "Mexican Economic Crisis"

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