Who wins and who loses with the Mexican super peso?

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The exchange rate between the Mexican currency and the dollar is at its lowest level in more than five years

The super peso closed the week strengthened. The exchange rate between the Mexican currency and the dollar is at its lowest level in more than five years, which gives the impression of being something very positive, however, not everyone wins with such an appreciated parity against the greenback.

Who loses?

In general terms and in a very simplistic way, it would be the export sector, the companies whose sales go to the foreign market, explained James Salazar, deputy director of economic analysis at CIBanco.

This is since a strong peso makes the prices of goods from Mexico more expensive in relative terms, which makes these products less attractive and reduces their demand in international markets.

Another segment of the population that loses are the people who receive remittances from abroad, because they will receive less pesos for the same amount of dollars, added the specialist. For example, at the beginning of this year, for every 100 dollars, you received just over 2,000 pesos; currently he gets 1,844 pesos, that is, almost 8% less.

Among those affected, there is also the tourism sector, so important for many states in the country. The super peso discourages a certain group of foreigners from coming to Mexico, it is easier for them to be interested in visiting the country with a cheap peso.

Who wins?

On the contrary, among the main beneficiaries of the super peso are the government and companies with liabilities in dollars, through the reduction of the financial cost of their external debt, Salazar pointed out.

A strong exchange rate helps to reduce the amount of what they pay for that financial commitment, even if it is not very noticeable, because the rise in interest rates can eat away this benefit, but it could have been worse, Salazar said.

Another of the beneficiaries are the importers. Mexico is also an important power in this area, the country acquires many inputs and capital goods from abroad, which are materials that are used to produce final goods that even end up being exported, highlighted the specialist.

Likewise, he estimates that the normal consumer also benefits. “For example, if you have a scheduled trip abroad, it is convenient for you to buy dollars now that they are cheap, the same if you have a debt in foreign currency.”

Additionally, the consumer benefits indirectly through the channel of lower inflation, added Salazar.

There is an element in the part of the price increase that is called the transfer effect (pass through), that is, the effect that a variation in the exchange rate has on domestic prices.

“When you have a strong exchange rate, as is currently the case, the pass-through would be unusual, limited or there would not be any, which reduces inflationary pressures, which benefits consumers.”

Ending balance

Taking all the above into account, it is difficult to assess whether the final balance of having a super peso is generally positive for the country.

The sum is not trivial, here other more complex evaluation elements come in. Let’s say that in the end the exchange rate is one more price of a product, the fact that it is cheap can be said to be good, although it has many implications, warns Salazar.

“We might be inclined to assume that the sum is positive, but ultimately there are winners and losers, people who are or are not very happy with super peso.”

Source: El Universal