Correns walked into the conference room and said to the people inside, "Breaking news: there has been another huge exchange in the foreign exchange market, totaling $2.1 billion."
In the midst of the profound silence, a Mexican bank employee entered the room and told Collins that there was a call from the bank. Five minutes later, Collins delivered another piece of bad news—another $2 billion had been lost.
Just as everyone was shocked by the $2.1 billion that had been exchanged on the 26th, another $2 billion attack suddenly appeared in the market.
This is only morning, and if this continues...
An even bigger shockwave is likely to hit this afternoon.
Just before this month, the daily trading volume in Mexico's foreign exchange market was only a mere billion US dollars.
They don't have much time!
A long silence.
The president's economic advisors eventually agreed to the 14% reduction and will then submit their thoughts and suggestions to the president for a final decision.
But they also knew that this was just a formality, and the president would sign it.
After lengthy discussions, they finally decided to temporarily close the stock exchange on the 30th to give the stock market some breathing room.
At this point, the Mexican bank will not intervene, but will allow the peso to float freely within a certain range until it reaches the equilibrium expected by the market.
The Mexican government officially announced later on August 29, 1994, that it would devalue the peso by 14%, while maintaining a 4% fluctuation range.
This news caused a huge shock in the market!
Although the market generally believes that the Mexican peso is somewhat overvalued and cannot maintain an exchange rate of 3.46 pesos to the US dollar, given the booming Mexican stock market and the fact that Mexican banks have foreign exchange reserves of over 20 billion, few people would have thought that the peso would depreciate at this time.
Market observers generally believe that Mexico will gradually loosen the exchange rate of the peso, causing it to gradually decline and reach a new price equilibrium.
Not to mention market observers, even many hedge fund companies hadn't thought of this.
Hedge funds that are good at finding market loopholes believe that there are plenty of dollar assets in the Mexican domestic market, even though they think the peso is already overvalued.
Moreover, they are all based on short-term government bonds, so there are very few institutions that short the Mexican peso.
Of course, this does not include hedge funds such as the Quantum Fund and Tiger Fund under the Freemasons, as well as international speculative capital.
They have been planning for this day for a long time, some for several years, and some for several months.
Everything is proceeding quietly according to their original plan.
They originally thought it would take them several months to half a year to begin harvesting.
Unexpectedly, the financial market suddenly changed dramatically, and the situation quickly developed in the direction they had hoped for.
Although there aren't many short-selling institutions yet, their efforts are substantial and demonstrate considerable skill. In less than two months, the peso has been utterly defeated, to the point that Mexico has been forced to announce a devaluation.
It's as if there's an invisible hand at work.
It's as if there's an invisible force pushing them in that direction.
So they went along with it and got involved.
Things progressed much more smoothly than expected.
It was only at this point that many belated speculators arrived in droves and began to enter the fray.
However, it's not too late!
Hedge funds were the first to react to the peso’s depreciation, borrowing pesos in the market and then selling them when the opportunity arose.
But at this time, the main foreign exchange markets for peso circulation had closed, and all they could borrow were a very small amount of pesos.
Hedge funds were initially confronted with the devaluation of the peso, and they began borrowing from the market, waiting for an opportunity. However, at this time, the main markets where the peso circulated were blocked, and they could only buy a small amount of pesos.
Meanwhile, Chen Dong was sitting on the sofa, leisurely watching the latest news from the BBC.
While historical inertia is powerful, Chen Dong's short selling has altered it somewhat, as his involvement has accelerated the peso's devaluation. The current devaluation is merely a signal; the subsequent capital flight will be the true culprit behind the peso's collapse!
The next day, the sudden devaluation of the Mexican peso made headlines in major media outlets.
Even those who have long followed the Mexican economy would not have expected that the Mexican government would announce a currency devaluation in the middle of the night, even though the Mexican economy had already been slowly deteriorating.
According to Bloomberg, the Mexican government announced a peso devaluation a day after closing its stock market, giving investors ample time to react. Rumors circulated that the new government's staff had strongly urged peso devaluation even before the new administration took office.
The New York Times reported that the Mexican government's sudden announcement of peso devaluation when its foreign exchange reserves exceeded $20 billion was likely to prevent attacks from international financial institutions, especially hedge funds. At the time, Mexico's foreign exchange reserves were $20 billion.
The Wall Street Journal reports that Mexico's devaluation of the peso was partly to counter speculative capital inflows and partly to bring the peso back to a normal level, given its previously inflated valuation.
They also claimed that the biggest culprit behind the recent devaluation of the Mexican currency was Chiapas, Mexico.
Reuters has published numerous reports claiming it's time to short the Mexican peso. Citing an unnamed source, they report that Wall Street is currently lending heavily in Mexican pesos and intends to conduct a massive sell-off in the next 24 hours; however, few banks are currently willing to lend pesos. Many hedge funds are planning to short the peso in the IMM market.
Capital IQ is a financial product widely used by financial institutions. Their relationship with the industry is much closer than with the news media, so after the report, everyone assumed that Wall Street hedge funds were after the Mexican peso.
Despite varying reactions to the Mexican peso, all parties played a crucial role in its continued decline. Although the Mexican government announced a peso devaluation, this move did not improve market confidence; instead, it exacerbated fears, perhaps unexpected by policymakers.
Therefore, the financial market is actually built on people's hearts. When people have confidence in it, the market will thrive, but when investors lose confidence, the market will plummet into the abyss.
Capital is flowing out at an accelerating rate!
First, there's the stock market. Because the Mexican stock market uses pesos, many American investors convert their dollars into pesos and then sell them on the Mexican stock market.
However, in the blink of an eye, it dropped by 14%. This wiped out all their efforts in the stock market, and those who did not reach 14% were now losing money, which is something no one can afford.
While the peso's devaluation was beneficial to Mexican exports, foreign investors in the Mexican stock market were oblivious to this stimulus. Their only thought was to quickly convert their money into dollars and then flee.
......
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