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Screenshot of a breaking news alert e-mail from Q2 2017
The Central Bank of Mexico has sold another $52 million at an auction which took place yesterday, representing the another daily large scale transaction in which the issuer of Mexico’s sovereign currency, the peso, has relinquished a large sum in dollars.
This particular sale resulted in the $52 million having been offloaded at an average price of 15.24 peso per dollar, and according to the Central Bank of Mexico, was carried out in order to increase FX liquidity after a recent downturn in the value of the peso and is part of the nation’s central bank initiative to make $52 million available at auction every day for three months, commencing March 11 until June 8.
The central bank also sells $200 million on days when the peso weakens 1.5% from the previous session’s fixing, thus this $52 million is additional to that amount.
Mexico has a highly advanced technology industry, as well as being a very active nation in exporting motor vehicles and other products of its vast industrial operations, and thus the country has a thriving economy. Therefore, to make dollars available for these sales, Mexico’s central bank has slowed its accumulation of foreign reserves.
The nation’s domestic reserves are boosted by the country’s vast industrial prowess, as well as dollar inflows from crude oil sales which are attributable to state owned energy company Petroleos Mexicanos, which in mid-march amounted to $195 billion.
Mexico’s external debt is minimal, as demonstrated by LeapRate in a TV interview in February, and pale into insignificance compared to the vast external debt that Western European nations such as France, Italy and Spain are encumbered with.
Thus, Mexico has a flexible line of credit of $70 billion with the International Fund, clearly showing that the nation is very solvent indeed.
When considering that, plus the nation’s high output, the central bank’s daily auctions appear to be in place just to keep the value of the peso in check.