Did you know that many people talk about the “devaluation of the peso” when in reality, it should be called depreciation? While this is very common among Mexicans, it’s not a minor mistake.
And you may be wondering: is devaluation the same as depreciation?
No, it is not. And misusing these terms prevents people from truly understanding what’s happening with the Mexican peso and its consequences.
So, if you want to know what each term means, we’ll explain them in the following lines. You’ll also discover which one applies in Mexico, as well as the causes and effects of the peso’s loss of value.
Term | Definition | In Mexico / Impact |
Devaluation | Official reduction in the currency’s value under a fixed regime. | Applicable before 1994. |
Depreciation | Loss of value determined by the floating market. | From 1994 to the present. |
Common causes | External factors (U.S. policy, oil), inflation, supply-demand. | Direct impact on the economy. |
Major crises | 1994 (“December Error”) and 2008-2009. | Severe effects on growth and debt. |
The terms devaluation and depreciation are often confused in the economic context because they both refer to the same idea: the loss of a currency’s value.
So, what’s the difference between devaluation and depreciation?
The difference lies in who or what causes it.
Devaluation. This occurs when the national currency loses value against other currencies by decision of the government or the central bank. It is applied as a deliberate economic measure and happens under fixed exchange rate systems.
Depreciation. This occurs when the currency loses value against others due to market movements. In this case, it happens under a floating exchange rate system (supply and demand).
This makes it clear that devaluation is not the same as depreciation.
Between November 1991 and part of 1994, Mexico operated under a controlled sliding band exchange rate regime. However, by the end of 1994, the country shifted to a free-floating exchange rate system.
This means that since December 22, 1994, the Mexican peso is not devalued. If it loses value, the correct term is depreciation, because there is no longer direct intervention by the authorities; its price is determined by the market.
A study published on Scielo highlights two key factors in the depreciation of the Mexican peso between 2014-2016: external shocks and the dynamics of supply and demand, particularly when losing value against the U.S. dollar.
In general terms, the causes associated with depreciation in Mexico are:
Supply and demand of currencies. If demand for U.S. dollars increases for any reason, the peso tends to depreciate.
U.S. monetary policy. When the Federal Reserve raises interest rates, capital often leaves Mexico for dollar-denominated assets.
Oil prices. A drop in oil prices can reduce national revenue, putting pressure on the exchange rate.
Global tensions. External shocks often generate uncertainty and affect the peso.
International financial factors. Banking crises, recessions, or volatility in emerging markets can also hit the currency.
Economic expectations. News about inflation or debt tends to influence confidence and the peso’s value.
However, the same study points out that macroeconomic indicators remained stable despite the pressure. Additionally, sectors like tourism benefited from the undervaluation of the currency.
The depreciation of the Mexican peso has fluctuated for decades. And as expected, the consequences have affected both the national economy and daily life.
Some of the most notable effects include:
When the peso loses value, prices rise—especially for imported products. This undoubtedly impacts the entire country, particularly those relying on Mexico’s minimum wage.
Industries dependent on imported raw materials are also affected by higher production costs. In the end, they are forced to pass that increase on to the consumer.
Part of Mexico’s public and private debt is denominated in U.S. dollars. Therefore, repaying it becomes more expensive when the peso depreciates, increasing pressure on public finances and companies with international loans.
Depreciation, on the other hand, can have both positive and negative effects on remittances. For example, when the transfer is in dollars, recipients get more pesos after conversion. The downside occurs when depreciation drives inflation, reducing its value as domestic prices rise.
When calculating percentages, the real impact on household economies can be estimated.
Depreciation and devaluation are phenomena linked to the world’s weakest currencies. Unfortunately, Mexico has not been exempt from these pressures in its economic history.
The following events are clear examples of the peso’s fluctuations over the years:
When the controlled exchange rate regime ended, the peso immediately collapsed against the dollar.
The lack of sufficient international reserves and the massive capital flight forced the peso to float freely. As a result, it suffered an abrupt loss of value. This triggered the financial crisis known as the “December Error”, which affected the entire Mexican economy.
This was a key example of Mexico’s vulnerability to external factors.
During the global recession of 2008-2009, the peso experienced a sharp depreciation, weakening by nearly 50% against the dollar in just a few months.
This occurred partly due to market nervousness, combined with the drop in oil prices.
In 2023, the peso started strong but weakened in the second half of the year.
Then, in the first quarter of 2024, it regained strength, trading between 16.79 and 17.35 pesos per dollar, according to Banxico. However, by the end of the year, it fell again, with a depreciation of nearly 23% against the dollar.
To better visualize the exchange rate trajectory, here’s a table by presidential term (peso per dollar):
Presidential Term | Start (pesos/USD) | End (pesos/USD) |
Luis Echeverría (1970–1976) | 12.50 MXP | 22.69 MXP |
José López Portillo (1976–1982) | 22.69 MXP | 70.00 MXP |
Miguel de la Madrid (1982–1988) | 70.00 MXP | 2,295.00 MXP |
Carlos Salinas (1988–1994) | 2,290.00 MXP → MXN | 3.441 (N$3.44) MXP → MXN |
Ernesto Zedillo (1994–2000) | 3.44 MXN | 9.40 MXN |
Vicente Fox (2000–2006) | 9.40 MXN | 11.00 MXN |
Felipe Calderón (2006–2012) | 10.999 MXN | 12.962 MXN |
Enrique Peña Nieto (2012–2018) | 12.962 MXN | 20.453 MXN |
A. M. López Obrador (2018–2024) | 20.453 MXN | 19.692 MXN |
Note: In 1993, three zeros were removed from the peso, going from 1,000 MXP = 1 MXN. That’s why Salinas appears with both units.
Devaluation and depreciation are two terms that must be clearly differentiated when referring to the loss of value of the Mexican peso. This has been the reality since 1994, when the country adopted a floating exchange rate system.
Understanding that devaluation is not the same as depreciation is just as essential as understanding their consequences. All these aspects are key to anticipating how they will impact daily life.
In the face of devaluation or depreciation, DolarApp can be an alternative. Not only for Mexico but also for Argentina, Colombia, and Brazil, since we operate with digital dollars and euros.
With DolarApp, you can not only safeguard USDc and EURc, but also take advantage of a fair exchange rate when buying or selling currencies. Don’t wait for exchange rate volatility episodes—download the app and protect your wallet.
The term stuck from the pre-1994 crises, when official devaluations did exist. Essentially, it remained as a synonym for “peso drop,” but ideally, we should say depreciation.
Depreciation has mixed effects. It usually hurts residents due to the rising cost of imports and loss of purchasing power. But it can also benefit exporters and families receiving remittances.
Although both factors matter, U.S. Federal Reserve interest rates usually have a stronger impact. When they rise, capital flows into dollars, putting pressure on the peso and accelerating its depreciation.
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