The morning after: What happens when a government destroys its currency

Dallas, Texas
Imagine this scene:
‘Everyone in the country was in shock. People’s net worth had devalued more than 53% overnight.’
‘The value in savings accounts dropped in half and neither merchants nor consumers knew how to react because they had never been through something like it before…’
This is how an American business executive described living through Mexico’s devaluation of the peso exactly 38 years ago on September 1, 1976.
Looking back, it was so obvious.
Mexico had a mounting debt, destructive policies, and a woefully unsustainable fixed exchange rate with the US dollar. All the writing was on the wall.
But most people ignored the warning signs and kept their money in pesos.
Mexican President Luis Echevarria even went out on the radio to reassure people that the currency was safe.
Finally, under intense fiscal pressure, the government reached its breaking point. And on August 31, 1976, they made the decision to devalue the peso.
People woke up the next morning on September 1st to a 50% decline. Subscribe to Sovereign Man

This post was published at Sovereign Man on September 1, 2014.