Banco de Mexico bought about $1.1 billion peso to stop the currency decline as the flight to dollars is having real effects around the world. The government is also going to allow foreign companies to explore for oil to help the government finances and exports. Mexico is being hit with declining exports, rising interest rates and quickening inflation. Reserves are falling in Mexico as the central bank tries to halt the currency decline.
The situation in Mexico will not be positive given the strong ties to the US. A recession in the US will pull economic performance south the border which will lead to a further flight to quality. It will be hard to control the currency because the Mexican reserves are less than countries like Brazil.
These are the situations which everyone feared in 1997-1998 and has been the reason for the build up of reserves by so many countries.
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