In just two days, nearly 20 billion dollars fled the foreign exchange market, a figure that has shocked the global financial community and caught Mexican policymakers completely off guard.
Correns and Silas received an urgent summons from the president to discuss countermeasures. But now, they were at a loss.
Of course, Currens and others were also severely criticized by the president.
However, after calming down, the president realized that he had to accept the fact that the amount of foreign exchange he had to provide was not enough to support a month's worth of imports.
After a brief negotiation, officials agreed that Currens would announce tonight that the peso would be decoupled from the dollar, allowing it to float freely in the market.
They knew that it would have dire consequences, potentially turning Mexico's current currency problem into an economic crisis that would engulf all industries. Even the rest of South America would not be spared.
However, Mexico has no other options or capabilities.
Currens was completely relaxed, or rather, he lay down.
A few days felt like years to him. Although he wasn't the culprit behind the current situation, he knew that everyone would pin the blame on him—the perfect scapegoat.
Ellie tiptoed over and whispered, "Manager, should we hold a press conference?"
At this critical juncture, everyone became cautious.
No one wanted to mess with Correns, not even the usually carefree Ellie, who was now looking extremely cautious.
Correns's face was grim, and he remained silent for a long time.
Just as Ellie thought the bank president had fallen asleep, Correns suddenly let out a long sigh, as if asking Ellie, and also questioning himself: "Am I really the most useless central bank president in the world?"
Ellie immediately replied, "No, definitely not! Who can say you're incompetent? This isn't your fault; it's just that too many problems have been accumulating and then suddenly erupted. No one could have handled it."
Correns treats his assistants well, which is why Ellie would say something like that.
Of course, he said this not because of their personal relationship, but because it was the truth. He believed that even if the legendary Alan Greenspan were in Currens's position, he would probably only have made this choice.
This is the shortcoming of a fixed exchange rate system.
When the capital account is fully liberalized and freely convertible, central banks around the world must be constantly on guard against these issues, especially Mexico when facing its powerful neighbor.
On the one hand, they need to use their own capital to develop the economy, and on the other hand, they also need to deal with a sudden currency war.
However, such things rarely happen, and certain conditions must be met for them to occur.
First, the country's currency is widely considered to be overvalued.
Secondly, the country's development has encountered problems. Money has not flowed into the real economy, but instead into the virtual economy, especially into the capital market, such as the stock market.
As a result, a very peculiar situation arose: the stock market continued to rise, reaching an all-time high and attracting investment from all over the world.
The economy appears to be functioning very healthily, but in reality, it faces enormous dangers.
Given the chance, its monetary system will collapse, leading to the collapse of the country's overall economy.
And now, this misfortune has befallen Mexico.
According to some statistics, American fund companies have invested $76 billion in the Mexican stock market. Although the Mexican stock market responded actively and effectively to the devaluation of the peso, the gains were limited and failed to restore investor confidence, thus failing to attract foreign capital inflows again.
If 20% of the massive $76 billion flows out, Mexico's monetary system will collapse.
Collins could even imagine that if the peso were allowed to float freely, the stock market would be even more affected, not only by the outflow of funds from overseas investors, but also by the estimated withdrawal of all foreign capital from international financial institutions.
A plummeting stock market, soaring interest rates, difficulty in borrowing, and a collapsing banking system would lead to increased inflation and high unemployment... A series of bleak images flashed through Correns' mind.
Although these things haven't happened yet, he can already see that they will come soon, and he is completely helpless about it. He feels terrible; a deep sense of powerlessness is almost overwhelming him.
"Sir, sir!" Ellie called out anxiously as she saw Correns lost in deep thought again.
There's not much time left before the press conference.
“21 points!” Correns’s expression turned pained.
As he spoke, he picked up a cigar and lit it. The smoke rose, obscuring his entire face.
31st, night.
The Mexican central bank issued a statement saying that, unable to maintain the devalued exchange rate of the peso, the government has decided to decouple the peso from the US dollar and officially begin free-floating trading, effective from 0:00.
The foreign exchange market quickly changed, with the peso depreciating at an alarming rate. The exchange rate fell from 3.9697 pesos to 5 pesos to 1 throughout the 31st, a drop of more than 25%.
The following day, the Mexican peso continued to decline. Although some argued that the peso's price had returned to normal valuation levels, the frenzied wave of capital flight could not be quelled in the short term.
The exchange rate fell to 5.3 pesos to 1 US dollar that day, a drop of 4.8%.
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