Ruled by “fear of floating”. Mexico’s exchange rate policy during the interwar period, 1925-1936

Abstract

This article argues that the Mexican exchange rate policy during the interwar years should be characterized as an archetypal case of "fear of floating". Conventional accounts claim that Mexico escaped the Great Depression because its policymakers deliberately repealed the gold standard ideology. Drawing on new archival data, I argue that national policymakers remained conservative with respect to any regime change, and their preference was always for a fix or pegged exchange rate. Overall, this article claims that the monetary regime choice in Mexico was not driven by some new heterodox insights, and once the financial crisis of 1931 had forced a depreciation of the peso, the national monetary authority promptly rushed to join the dollar bloc.