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What's your money worth? [1]
['This Content Is Not Subject To Review Daily Kos Staff Prior To Publication.']
Date: 2023-07-09
While there are many factors that affect a country’s exchange rate, two key figures are crucial: the inflation rate and the interest rate. A year ago the Mexican peso was at $20.5; now, it has dipped below $17, a 17% improvement.
Mexico’s economy has been doing well and promises to do even better with the ‘nearshoring’ trend, as the US and other countries see Mexico as a safer bet than China. Already YouTube videos are appearing about the flight from China of major manufacturers such as FoxConn.
I’m not an economist so I won’t try to examine factors such as BREXIT. Instead, I’ll stick to these two key rates. The US interest rate is at 5%. US inflation is at 5% too, and trending down. Assuming you have money to save, in dollars you’d stand still, because 5% inflation wipes out 5% interest. So at present, non-cash investments might offer a better return. The ’spread’ as it’s called, is zero. Mexico’s inflation is also at 5% and trending down, but savers can get 10.5% on CETES (official government bonds, very safe) and so the spread is 5.5% in favour of savers.
For comparison, let’s take a look at other countries:
The UK inflation rate remains stuck at 8.7% while the interest rate is at 5%, a negative spread of 3.7%. Natwest is offering 6% to savers, a negative return of 2.7%.
The Eurozone interest rate is currently 3.5% but inflation varies by country. In Germany it is 6.4%, a negative spread of 2.9%. In Spain, inflation is 3.9%, a negative 0.4%.
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