The Mexican peso is the second strongest currency in the world this year. At the end of August 8, it registered a cumulative appreciation of slightly more than 14 percent.only below the Colombian peso, which gains almost 19 percent in 2023.
The appreciation of the peso has various factors, all of them already mentioned, we have even noted how this strength of our currency is linked much more to the external environment and less internally.
There are many advantages of the strong exchange rate for our country, especially it has contributed to lowering inflation, which had skyrocketed last year and threatened to alter the course of the economy. The difference in rates between Mexico and the United States, which makes investments in Mexican pesos more attractiveis another of the beneficial factors for our currency.
However, the exchange strength also has costs: the external sector is the one that registers the most negative effects, exports are less and less competitive because companies, when converting the dollars received into pesosThey have less and less income.
But there is another factor in the exchange rate appreciation that hits many individual Mexicans squarely, the great majority of them surely belonging to the lower classes, and who have a high percentage of their modus vivendi in remittances.
We are referring to the relatives of Mexicans who emigrated to the United States basically to get better job opportunities and who send resources to Mexico every month. These personal incomes are already deteriorating sharplythe figures are alarming and little or nothing can be done because, as we know, the exchange rate is subject to market forces.
Historic drop in purchasing power
An analysis by Banco Base, with figures from Banco de México, highlights the impact of the exchange rate strength this year on the purchasing power of remittances; that is, the purchasing power of millions of Mexicans who live off these resources in our country.
The bank makes projections considering the factors that could influence the remainder of the year in the exchange rate in Mexico, from there, it also evaluates how much remittances can grow this 2023 and at what level could the inflation rate close in our country.
According to your projections and expectations, this year the purchasing power of remittances could record its steepest drop since there is a record of this type of income for Mexican families.
Measured by the average exchange rate, as well as its appreciation or depreciation, this year 2023 the purchasing power of remittances would also interrupt a streak of 9 consecutive years of increases and at the end of the year it would register a fall of 11.12 percentsurpassing the previous record that dates from 2010 when this same purchasing power registered a negative adjustment of 10.45 percent.
The assumptions were made considering an annual increase of 8.1 percent in remittances for this year, an average exchange rate of 16.80 pesos, and inflation of 4.6 percent at the end of the year.
Depreciation history
The strong appreciation of the peso is a factor that Mexicans who receive remittances and who have these resources as a source of survival or part of their current spending are little used to.
If the loss of purchasing power materializes this year, for users of remittances, it would be only the eighth time that this phenomenon would be reported in 27 years.
This means that, in reality, The Mexican peso has recorded a history of constant depreciation since practically the beginning of the free floating exchange rate. to the present day. This streak of depreciations has severely impacted our economy; It is the reverse phenomenon that remittance recipients now suffer, since obviously a weak peso and a strong dollar are favorable for those who receive dollars and convert them to pesos.
In the analysis prepared by Banco Base, what happened in 2003 stands out, when the greatest benefit or growth in the purchasing power of remittances in our country has been registered, rising no less than 64.46 percent.
In other words, 20 years ago the depreciation of the peso against the dollar plunged the Mexican economy into serious problems, but remittance recipients recorded significant benefits, the largest in history to date.
Thus, the integration of Mexico with the US economy is of such magnitude, that today more than ever the exchange movements between both currencies have a diversity of effects, positive and negative.
For now, Those who receive remittances this year will have to get used to having fewer resources in pesos. According to the analysis, perhaps this deterioration in the purchasing power of remittances explains part of the growth in flows to Mexico, since Mexican workers in the United States increase their amounts sent to try to partially compensate for this loss of purchasing power. of their relatives in Mexico.
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