Economic Watch
Mexico

According to the most recent study from the Bank for International Settlements
(BIS), the Mexican peso is ranked eighth in terms of currency transactions
worldwide and first among emerging countries
In general, the importance of emerging currencies on the global foreign currency
market is increasing and coinciding with the adoption of non-conventional
monetary policy measures in developed countries
Increased participation by institutional investors and hedge funds, among others,
continues in the global currency market as well as through derivatives and overthe-counter markets
Iván Martínez Urquijo
[email protected]


According to the study, carried out every three years by the Bank for International Settlements
(BIS) among the world's central banks, the peso has become the currency with the largest volume
of transactions among emerging market currencies, while it was ranked third in 2010. With an
average volume of transactions increasing by US$50 billion to US$135 billion in just three years,
the peso has overtaken the South Korean won and the Singapore dollar to reach first place. This
170% increase, far exceeding the 35% overall rise in the total value of currency exchanges
worldwide, places the Mexican currency as the eighth most traded currency worldwide, going
from 1.3 to 2.6 percent of the total volume traded in global currency markets. It is important to
note that only 23% of the US$135 billion traded daily is traded locally, a reduction from the 33%
that this market represented in 2010. This may be one of the influencing factors in the high
correlation of the value of the peso with global risk aversion trends, as well as the moderate
increase of its volatility in recent years.
Chart 1
CETES and Mbonds held by foreigners and daily
transactions volume of the peso (%, US$
billions)
135 billion
140
Chart 2
Exchange rate and global risk aversion [VIX]
(peso per dollar, %)
15.0
50.0
14.5
45.0
120
40.0
14.0
100
35.0
13.5
30.0
80
13.0
60
50 billion
40 billion
40
27.38%
12.5
20.0
12.0
15.0
11.5
10.0
Source: BBVA Research with BIS and Banxico data
Mxn (LHS)
Source: BBVA Research and Bloomberg
VIX (RHS)
Sep‐13
May‐13
Jan‐13
Sep‐12
2013
Daily average volume (billions)
Jan‐12
2007
2010
% Foreign holdings of CETES and Mbonos
May‐12
0
Sep‐11
16.41%
May‐11
20
25.0
56.16%
Jan‐11
Arnoldo López M.
[email protected]
Sep‐10
Mexico
The Mexican peso becomes the currency with
the highest transactions volume among the
currencies of emerging countries
Jan‐10
Economic Analysis
May‐10
September 26, 2013
Mexico Economic Watch
September 26, 2013
In general terms the study indicates increased representation of emerging country currencies in the
global currency exchange market, and a corresponding decreased representation of industrialized
country currencies. In addition, to the increased representation of the Mexican peso in the currency
trading markets, the Chinese yuan increased its representation from 0.9% to 2.2%, while the
Russian ruble increased from 0.9% to 1.6%. Conversely the participation of the euro decreased
from 39.0% to 33.0%, the Swiss franc from 6.3% to 5.2%, and the Canadian dollar from 5.3% to
4.6% from the total amount traded globally. It should be noted that this phenomenon coincides
with the enactment of unconventional monetary policy measures by the central banks in developed
countries, in particular the Federal Reserve.1. This has led to increased interest on the part of
investors in the potential performance of emerging markets and, therefore, to greater demand for
these countries' currencies. In the particular case of Mexico, an additional possible factor explaining
the increase in transactions has been inclusion to the World Government Bond Index (WGBI) in
March of 2010, which resulted in greater demand for Mexican financial instruments by institutional
investors. 2
Also, the results confirm the tendency seen in previous studies with respect to the increase in the
participation of institutional investors, hedge funds, and small and regional banks as counterparties
in the global currency exchange market. This group of investors increased its representation from
48% to 53% of the total volume of transactions. The predominance of transactions using
derivatives over spot transactions continued, representing over 60% of operations, a similar level as
in the 2010 study. Finally, it should be noted that the vast majority of exchange instrument
transactions is carried out in over-the-counter markets, so that, according to the BIS, caution should
be applied when taking into consideration currency speculative positions statistics, which generally
come from regulated markets.
Chart 4
Chart 3
CETES and Mbonds held by foreigners (% of total)
Participation in the total volume of operations of
the global exchange market (%)
70%
33.4%
EUR
60%
39.1%
11.8%
12.9%
GBP
50%
WGBI
5.2%
6.3%
CHF
QE2
40%
4.6%
5.3%
CAD
QE3
30%
MXN
2.5%
1.3%
20%
CNY
2.2%
0.9%
RUB
1.6%
0.9%
TRY
1.3%
0.7%
10%
Source: BBVA Research with Banxico data
1
2
Jul-13
Apr-13
Jan-13
Jul-12
Oct-12
Apr-12
Jan-12
Jul-11
Oct-11
Apr-11
Jan-11
Jul-10
Oct-10
Apr-10
Jan-10
Jul-09
Oct-09
Apr-09
Jan-09
0%
0%
10%
20%
2013
30%
40%
50%
2010
Source: BBVA Research with BIS data Note. EUR: euro; GBP: Great
Britain pound; CHF: Swiss franc; CAD: Canadian dollar; CNY:
Chinese yuan; RUB: Russian ruble; TRY: Turkish lira.
In the 2010-2013 period, the balance of the US Federal Reserve has increased from US$2.2 trillion to US$3.6 trillion.
CETES and Mbonds holdings by foreigners grew from 17% to 56% between 2010 and 2013.
DISCLAIMER
This document was prepared by the Economic Research Department of Banco Bilbao Vizcaya Argentaria (BBVA) and BBVA Bancomer S. A., Institución de Banca Múltiple, Grupo Financiero BBVA
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