Is the US Dollar Worth More in Mexico? No—Exchange Rates Reflect Economics

How Exchange Rates Work

• Floating rate: MXN trades freely; value set by supply/demand in forex markets.
• Determinants: Interest rate differentials (Banxico vs. Fed), inflation gap, oil prices (MXN = petrocurrency), remittances, capital flows, risk sentiment.
• Purchasing Power Parity (PPP): 1 USD ≈ **10–11 MXN** (IMF 2023) for equivalent goods — meaning **MXN is undervalued vs. USD** by ~40% in market terms.

Why It *Feels* Like Dollars Go Further

• Lower price levels: Mexican wages, rents, services cost less in USD terms.
• Tourist pricing: Some vendors quote in USD at unfavorable rates (dynamic currency conversion).
• Remittance inflow: $60B+/yr from US → supports MXN but doesn't equalize prices.

Practical Advice

• Pay in pesos (MXN). Avoid DCC (paying in USD at terminal) — 3–6% markup.
• Use ATMs (Banamex, BBVA, Santander, HSBC) for best rate (mid-market + 0–1%).
• No-fee cards (Wise, Revolut, Schwab, Chase Sapphire) save 3% vs. typical bank cards.

Bottom Line

The dollar buys **more goods/services in Mexico** because **Mexico is a lower-income economy**—not because the dollar has special value there. The exchange rate is a market price, not a privilege.