Lately, a few of my neighbors have been grumbling about the fact the U.S. dollar has lost some of its value in the last few months. It went from an all-time high of $21.93 pesos per dollar in January, to its current value of around $17.57 pesos per dollar.
That’s a significant decrease in value but it shouldn’t have come as a surprise to anyone who was paying attention and has, at a minimum, a basic understanding of economics.
The U.S. Election
I hate to open old wounds for any readers who are still a little touchy about the last American presidential election – but it’s relevant to this discussion, so I have to bring it up.
While campaigning for president, Donald Trump laid out a plan to bring jobs back from Mexico and to crack down on illegal immigration. If he managed these two things, it would be a huge blow to the Mexican economy.
In case you were unaware of this, money sent from back to Mexico from workers –mostly in the U.S. – is the #1 source of foreign income for Mexico. It even surpasses the income that they make from crude oil exports.
The Pew Research Center estimates that there are approximately 5.6 million unauthorized Mexican immigrants living in the States. I’m sure you can see how a tougher enforcement policy might negatively affect money being sent back to Mexico.
As soon as Donald Trump was elected, it caused investors to worry about the economic stability of Mexico and the peso plummeted. It continued to drop over the next couple of months as the world waited to see what would happen. Investors are a skittish group – like a bevy of quail.
For those of us with bank accounts on both sides of the border, we took advantage of this opportunity to exchange dollars for pesos. By the way, those same pesos are worth a lot more nowadays.
Now that pre-election rhetoric is being replaced with facts and deeds, foreign investors are regaining some of their confidence and are investing in Mexico again.
Much of the investment is in the recently privatized Mexican oil industry. In March of this year, a company from Italy announced the discovery of a significant oil reserve in the Gulf of Mexico off the coast of Tabasco. It’s the first oil discovery in Mexico by a private company since 1938.
Intentionally Devaluing the Dollar
There is a current push from President Trump to devalue the dollar in order to be competitive in an international marketplace, increase exports, and bring manufacturing jobs back to the United States. It would be difficult — if not impossible — to achieve those goals if the dollar stays at its current value.
Exchange rates are subject to a wide range of factors and variables, making them virtually impossible to predict with any certainty. Even the professional analysts are constantly revising their forecasts in response to new information. If you look at some of their reports from December, you’ll see they were predicting we would have a 20:1 exchange rate right now. It just goes to show you that no one really knows what will happen.
So what does this mean to American expats? Well, it means that our dollar doesn’t go quite as far as it did a few months ago. That’s the bad news. The good news is that the low cost of living still makes Mexico an attractive place to settle.
As for us, Linda and I are going to watch the exchange rate fluctuate from the comfort of two lounge chairs on the beach.