1994 Mexican Peso Crisis

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The 1994 Mexican Peso crisis was a monetary disaster that reverberated throughout the world.Brought on by Mexico's "Tequila Crisis" ,the peso's fixed exchange rate against the dollar "plunged by around 50% within six months…

Introduction

Through the help of the United States and others, Mexico's economy has since rebounded nicely, but is not growing at a rate that many experts would consider desirable. To be sure, the scars of the 1994 crisis will be apparent in Mexico for years to come.The impact of the currency crisis on Mexico's financial sector was especially severe. "Stacks of bad, even fraudulent, loans by the recently privatised banks were exposed. Many banks went bust. Thousands of Mexicans, particularly in the new middle class, defaulted on loans as interest rates rocketed, and had their homes repossessed. In 1995 GDP shrank by 6.2%". The devastation of this collapse had an impact that reverberated throughout the region, and was amplified by Mexico's recent ascension to the North American Free Trade Agreement.The new free trade block in North America demonstrated the ripple effect that a financial crisis in one country can have with its main trading partners.The existence of NAFTA, while a hazard to the United States due to this vulnerability to problems plaguing another country, constituted a life raft for Mexico because it ensured that the United States would need to make a greater effort than it otherwise might to assist Mexico. ...
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