Mexico's top financial officials change their strategy in less than a week
The Mexican Currency Exchange Commission (MCEC) will begin electronically auctioning U.S. dollars this week as it tries to apply a financial tourniquet to the peso, which is facing its worst value crisis in years.
MCEC, which consists of the nation's central bank (Bank of Mexico) and the Finance Ministry, known as the Secretaría de Hacienda y Crédito Público, plans to sell off $200 million dollars every day the peso declines in value by 1.5% or more against the American greenback. The Mexican peso has been ravaged in recent weeks by collapsing oil prices, and has lost nearly 13% of its value in 2014. U.S. dollar skyrockets against sliding peso.
Last week Finance Minister Luis Videgaray announced that the government would not tamper with the national currency, allowing the open market to determine its value. "As long as markets remain orderly, we in the Hacienda will not intervene. The price of a dollar is determined by the offer and the demand," he said. But the dollar auction is evidence that officials have already changed their minds. According to the MCEC, selling off U.S. currency is designed to inject liquidity (cash) into the market and reduce exchange rate volatility.
At the close of markets yesterday a dollar was worth up to 14.65 pesos. But today Mexican currency recovered slightly, and dollars were trading for about 14.35 pesos at mid-morning. "The exchange rate has already stabilized," said Banixco chairman Agustín Carstens, commenting on the impending auction which was announced by officials yesterday.
"In order to be able to confront the storm approaching from abroad we are well prepared, although we have to be vigilant," added Carstens, in reference to falling oil prices and the rising value of the dollar against the peso.
Mexico last resorted to auctioning dollars in November 2011, as the Euro Zone debt crisis threatened the value of the peso.
Mexico has plenty of dollars in reserve to sell - over $190 billion as of Aug. 19. The computerized auction will be held three times a day, at 9:30 a.m., noon and just before the close of markets.
Updated 4:00 p.m. - Perhaps Carstens spoke before all the evidence was in. The dollar closed up today, at 14.72 pesos.
Aug. 13 - Mexican economy remains stuck on a southbound train
Mérida's main daily, Dec. 9, 2014 - "They're going to the rescue of the peso"
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