ABSTRACT
This chapter analyzes the history of exchange-rate policy in Mexico since the end of the Bretton Woods regime. It also analyze the applicability of the financial intermediation hypothesis to the Mexican case, especially when set against competing hypotheses. The chapter explores some of the economic conditions surrounding the crawling-band policy, such as the growth of Mexico's trade exposure and the growth of foreign investment in Mexico. It establishes the elements of the financial intermediation hypothesis, arguing that the banking system was active and concentrated, had an interest in exchange rate stability, and had an influence on government policy. The chapter analyzes the government's motives and actions. Numerous conditions and factors have been cited as contributing to the peso crisis. Mexico's economy also has a more developed capital markets than Thailand does, yet in both cases, banks were more active than in most developing countries, providing debt financing to a number of commercial firms.
