Historical Sketch

In 1521, Spanish conquistadors under the command of Hernán Cortés defeated the Aztec Empire and began establishing the Spanish rule. In 1535, the Viceroyalty of New Spain was created that lasted until the early 19th century. The Napoleonic invasion of Spain in 1808 and the subsequent war of resistance weakened the Spanish power overseas. In 1810 began the Mexican war of independence which achieved its goal in 1821, when New Spain became the first Mexican Empire with a former royalist military officer on the throne. The monarchy turned out to be short-lived, and the emperor abdicated already in 1823, giving way for a republican government. The political situation remained fragile and turned into open civil war between liberals and conservatives in the mid-1850s. The defeated conservative faction demanded France to intervene and to install a monarchy with a European noble as head of state. Thus emerged the second Mexican Empire under the rule of a Habsburg prince. When France withdrew its support, the emperor was overthrown and executed, and in 1867, Mexico returned to a republican government. The internal conflicts and instability remained and triggered another civil war, or revolution, in 1910 that went on for a decade. In the 1920s, the situation consolidated and stabilized under a one-party-rule that continued throughout the entire 20th century.

Monetary History Overview

New Spain quickly became the economic center of the Spanish colonial empired due to the abundance of precious metals. The Spanish accounting and monetary system were introduced immediately, and Mexico became the source of coin production. For its quality and stability, the so-called "Spanish Dollar", the 8 Reals in silver, and the "Spanish Doubloon", the 8 Escudos in gold, became the dominant trade coins worldwide for centuries, rivalled only by the Austrian Maria Theresia Thaler of the late 18th century.

The Mexican independence in 1821 did not change the monetary system. The republican constitution of 1824 prescribed the 1st Mexican Peso, as national currency. No currency legislation was passed for detailling any specification, so the Spanish bimetallic standard tacitly continued. In 1861, the second Mexican Empire passed a currency law under French influence. The name "Peso", which traditionally meant the silver coin of 8 Reals, was officialized as currency name, and the sub-unit became decimal. However, the silver coins returned to the familiar denomination already in 1873, since they were to large extent exported to Asian trading places where the new name and look did not go well. Like in many countries of the Americas, paper money issuance was initially private in Mexico. The first commercial bank began issuance in 1865, many others followed, such that paper money became dominant. The Banking Law of 1897 regulated the issuance. In 1905, the Peso was devalued to solve the currency crisis caused by the abundant paper money, and Mexico switched to the gold standard. The civil war of of the 1910s devastated the economy and destabilized the currency. The gold standard was suspended in 1913 and restored in 1918, although convertibility could never be restored for real. The private paper money issuance was gradually restricted, until in 1925, the Bank of Mexico started operations and obtained the monopoly. The gold circulation was abandoned in 1931, and in 1936 the Peso unpegged from gold. In the early 1940s, the rate of the Peso against the US Dollar stabilized, and a firm peg was introduced in 1946 when Mexico joined the Bretton Woods currency system. Two massive devaluations had to be done in 1949 and 1954, afterwards, the rate remained stable until the floating of the Peso in September 1976. In the 1980s, the depreciation accelerated and turned into hyperinflation that brought a 99% loss of value until the end of the decade. A stabilization succeeded in the early 1990s, and at the beginning of 1993, the currency was reformed. Three zeros were cut, and the 2nd Mexican (New) Peso became the new unit. The period of stability was short, already by end 1995 another 60% of the value was gone. Since then, the Peso has settled into a slower but continued depreciation.

Mexico joined the International Monetary Fund (IMF) on 31.12.1945 as a founding member.

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