Putting Pesos Back In The Pits
COULD FUTURES CONTRACTS help smooth out the wild swings in the peso? The Chicago Mercantile Exchange is about to find out. On Apr. 25, pit traders will likely add the peso to the seven other currency futures contracts offered on the Merc.
The move will probably be welcomed by corporations and others who have been whipsawed by the market since December, when Mexican officials stopped propping up their currency. A futures contract enables an exporter due to be paid in pesos in three months to hedge against a sharp drop in the peso. Hedging theoretically diminishes panic buying and selling in the cash currency market. "The futures market is an essential complement to a floating peso," says one Mexican official, Francisco Gil Daz, a deputy governor at the Bank of Mexico.
Initial trading is expected to be light--no more than 5,000 contracts daily. That's a far cry from trading in the Big Three: yen, German marks, and Swiss francs. But it's significant that the Merc is going ahead at all. The Merc abandoned trading in peso futures in 1985. One factor: Mexican officials felt the trading was hurting, rather than helping, their peso policies.