It has taken years for Mexico to reduce its percentage of US dollar debt to total debt. US dollar debt as a percentage of total debt is 40-45%, lower than in times past. This is a great success, and Mexico should not stop now.
In the past 30 years, emerging markets have experienced multiple crises, all of which have revolved around currency weakness that had excessive dollar borrowings at their cores. It began in 1994 with the Mexican Tequila crisis and moved on to the Asian and Russian crises in the late nineties. To this day sentiment towards emerging market bonds and stocks is tainted by these crises. Investor memories are long.
The first crisis was the Mexican Tequila crisis. As US dollar borrowing rates were lower than Mexican peso rates in the early nineties, Mexico borrowed a lot of US dollars. Great strategy if dollars are coming into the economy to cover the US dollar debt payments. But a large portion of the dollar flow was from oil sales, and the oil prices were low at about $20 per barrel. Lower oil prices led to lower dollar flows into Mexico, while US dollar borrowings went up.
It was like having a credit card balance and taking a cut in pay or hours worked. Your income is down, but you continue to run up the credit card balance. Sooner or later, unless your pay or hours go back up, you will not be able to pay the credit card bills and may default.
The harsh part for Mexico was when the International Monetary Fund bailed them out with a loan of $50 billion, which was contingent on implementing stringent economic reforms. The Mexican population suffered for years.
Harsh times led to a new commitment by Mexico to increase local currency debt at the expense of US dollar debt. It took years and patience, but it worked; in 1994 approximately 55% of Mexico’s public debt was in US dollars, now, approximately 40-45% is in US dollar debt.
This is great, but it must continue. Mexico should get their US dollar borrowings closer to 40% or below. A higher percentage of local currency bonds will lead to a healthier economy long-term.
How can this be done? Well, the easiest way is to add new products and new investors through the issuance of Mexican peso stable bonds, like those offered by Etherfuse.
Mexican stable bonds can be offered in small amounts, as low as $1.50 which will increase the actual number of investors in Mexican government debt.
At the same time, a peso stable bond offering could attract money from crypto accounts outside of Mexico. It seems to be clear that the US dollar is going to go down in value, and USDC is a risk to stable coins at 99% of the total stable coin market. Investors are looking for alternatives to USDC.
Mexican peso CETES stable bonds are a good alternative. After a rough 2024, the currency is up 9.7% year to date, the highest in eight months, despite all the tariff worries.
The yield on stable Mexican bonds is 6.92% for short-term paper and the token itself has gone up nicely since April, almost 10% in value
Mexico has done a good job of substituting local currency debt for US dollar debt, but there is more to be done. Stable CETES bonds may just be the doctor ordered.
This blog is for educational and informational purposes only, covering general market trends, industry developments, and asset features. Nothing herein is investment advice, a solicitation, or a recommendation to buy or sell any assets. Etherfuse and its guests may hold stakes in some or all of the assets discussed.
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