The Value of the Mexican Peso Is Soaring. What Does That Mean for Texans?
Texas Monthly; YAY Media/Alamy Francisco Viramontes, who grew up in the West Texas border town of Presidio, used to do the bulk of his shopping in Mexico, where the cost of food and basic supplies was only a fraction of what it was in America. Even after he left his hometown to work in healthcare management at a facility near Odessa, he would regularly drive more than two hundred miles to Ojinaga, right across the border from Presidio, and leverage his dollars to shop for cheese, meat, and tortillas to take back home with him. Now, however, the value of the Mexican peso has sharply appreciated. Amid the early days of the pandemic, a dollar fetched an all-time high of around 25 pesos, and just a year ago it fetched 20. Now, it’s only worth around 17—which drives up prices for Viramontes and others shopping with greenbacks. “It’s not really worth the trip,” he said. “If I go, it’s just to visit family.” For some, including Viramontes, the exchange rate is a deterrent to travel across the border. Many others, including Molly Ferguson Rodriguez, don’t have any other choice but to cross. It’s a common border tale: a family splits its time between the two countries. Rodriguez and her husband live in a house in Ojinaga but she works as the band teacher at Presidio’s middle and high schools. Her parents live in Presidio and she visits them frequently. Each time Rodriguez crosses over from Mexico, she has to pay a toll of 30 Mexican pesos. That used to be around $1.50 USD last year. Now it’s close to $1.80. When you live on a teacher’s salary, get paid in dollars, and cross as frequently as she does, Rodriguez said, the extra dimes add up. While border residents are perhaps most immediately affected by the peso’s soaring value, the larger Texas economy may also see major consequences, both positive and negative. Mexico surpassed Canada and China as the top U.S. trading partner in 2023, and approximately 80 percent, or some $400 billion, of U.S.-Mexico trade crosses the border in the Lone Star State. The economies are so intertwined that Jesus Cañas, a senior business economist at the Federal Reserve Bank in Dallas, specializes in the Mexican economy and border economics. “We see Mexico as part of our region,” he said. Texas Monthly spoke with economic experts on both sides of the border to better understand what’s happening to the Mexican currency and what effect the strong peso will have on tourism, cross-border trade, and more. Why is the peso appreciating so much? Mexico has become an attractive destination for those looking to invest in emerging economies where costs of labor, land, and other factors of production are lower than in, say, the United States, Europe, or Japan. Many emerging countries that used to be attractive to investors are becoming less so: Russia, because of the war in Ukraine, and China, because of geopolitical tensions. As the Biden administration has aggressively encouraged U.S. companies to shift manufacturing away from China and toward the U.S. and its allies, Mexico has been a beneficiary. Cañas noted that Mexico is particularly appealing because its macroeconomic conditions are sound: It’s an open-market economy with flexible exchange rates, its government finances are solid, and it enjoys proximity and low-tariff access to the huge, developed economies of the U.S. and Canada. As more and more investors build factories and warehouses in Mexico, hire locals to work in them, and pay the bills in pesos, the currency’s value appreciates. Who will be most affected? Broadly speaking, Texas exporters of products such as oil and gas, chemicals, plastics, and electronic components needed by Mexican factories will benefit, as will Texas businesses that benefit from increased spending by Mexican tourists and shoppers who now find Texas visits and products a relative bargain. Texas importers of everything from heavy trucks to fresh produce will be hurt, as will Texans visiting Mexico. Also hurt by the strong peso are the millions of Mexicans who work abroad and send remittances home to their families. After India, Mexico is the second-biggest beneficiary of remittances from the United States, receiving more than $61 billion in the past year. Those who send money include undocumented migrants and temporary employees, many of whom labor in agriculture, construction, and the service industry, as well as legal residents and naturalized citizens with family members still in Mexico. The rising value of the peso means that American dollars won’t […]
