Competition, Controversy Enshroud Currency Exchanges
Inside a cluttered storefront here, protected by bulletproof glass, a triple-locked, metal-plated door and closed-circuit cameras, Francisco Anzar leaned forward in his vinyl reclining chair and pushed some keys on his personal computer.
Instantaneously, the prices of various goods--gold, silver, coffee--flashed on his screen. He was playing the highly speculative commodities market, receiving computerized quotes from far away in New York.
“This,” said Anzar, gesturing toward the screen, “this is just a hobby. At least with commodities, you have something solid, you can follow the prices. With pesos you have to go by instinct, by feelings.”
Commodities are a pastime for Anzar. Pesos are his business.
Anzar runs three currency exchange houses, or casas de cambio , in this small San Diego community adjacent to Tijuana. He is one of a singular community of entrepreneurs, who, since the major peso devaluations of 1982, have set up shop along the 1,900-mile U.S. border that stretches from the nearby Pacific to the Gulf Coast of Texas.
They work out of trailers and well-appointed offices, storefronts and kiosks, their numbers varying with the ups and downs of the volatile Mexican peso. Their signs of hand-scrawled cardboard, plastic and flashing lights proclaim the latest exchange rates for the sale and purchase of Mexican pesos. In just a few years, the exchange houses have become an integral piece of the jumbled border landscape, yet another quick-buck-or-quick-bust enterprise to spring up in reaction to the odd mix that is the U.S.-Mexico border.
The money changers engage in an extremely competitive, largely secretive, high-risk business involving exchanges of untold millions of dollars each week. Each day, couriers cross the international boundaries lugging suitcases stuffed with tens of thousands--sometimes millions--of dollars in cash destined for or originating in the exchange houses of San Ysidro, El Paso and Laredo, Tex., and other border cities.
No one asks where the money comes from. And many exchange house owners declined to talk about their operations.
The owners are a varied, multinational lot, all attracted for one reason or another to the challenge of playing the peso. Among those running exchange houses on San Ysidro Boulevard, traders said, are natives of the United States, Mexico, Argentina, Korea and Italy. Some are longtime border businessmen; others were attracted by the lure of the currency business.
“I was running my pawn shop here, so the peso business seemed like a natural service to start,” explained Anzar, a native of Mexico who now lives in San Diego. His pawn shop, mostly dealing in jewelry from Mexican citizens, continues to operate side by side with an exchange house.
Inside any exchange house, clerks work behind bulletproof glass and metal grates, learning to count money fast, spot counterfeit bills, look out for trouble and handle a variety of weapons stashed below counters. Armed guards eyeball customers. Closed-circuit cameras videotape customers and employees. Attempted robberies and shoot-outs are not uncommon.
Speed is critical. Slight variations in the value of the peso--or rumored changes--can cause mini-panics along the cluttered streets favored by the money-changers. The traders keep a watchful eye on the rates of their various competitors, always on the lookout for an edge.
“It’s a business that burns people out fast, even young people,” said Mike Haskell, a chain-smoking former mortgage banker who runs the large, 24-hour Valuta exchange houses in San Ysidro, El Paso and Los Angeles.
“There’s no vacation. There’s no days off. It’s something you have to watch all the time. . . . You can end up losing a lot of money by not paying attention, by trading at the wrong levels. . . . We have our own suicidal price wars. We all talk, but we all hate each other. . . . It’s very analogous to the casino business.”
And, like casinos, the money-exchange houses are controversial.
On the U.S. side, authorities suspect that some of the businesses are prime destinations of Mexican narcotics traffickers seeking to “launder” millions of dollars in drug proceeds. In February, five houses were charged with not meeting legal requirements that all transactions of $10,000 or more be reported to the government.
Each month, travelers crossing the border at San Ysidro declare more than $100 million--an amount that has more than tripled since 1982, federal officials say. No one knows how much undeclared money comes across. Unsubstantiated rumors persist that one or more of the San Ysidro houses are backed by Mexican drug money.
“With the value of money going through them, there’s always the possibility that there could be money laundering,” noted John Hensley, assistant special agent in charge of the U.S. Customs Service office in San Diego.
In Mexico, meanwhile, government officials and others frequently cite the exchange houses as yet another destabilizing element in their nation’s tenuous economy. The government has taken steps aimed at curbing peso speculation by U.S. exchange houses and banks, but nothing seems to choke off the money business along the border. Today, it costs close to 500 pesos to buy a buck in the border money exchanges.
“The exchange houses serve as a mechanism for the flight of capital from Mexico,” said Jose Javier Robles, a researcher at Tijuana’s Center of Border Studies of the North of Mexico. He authored a recent study on the exchange houses.
Despite the controversy, the multimillion-dollar border money industry is largely unregulated. In San Diego, for instance, all it takes to open up an exchange house is a $25 annual city fee, plus $2 for each full-time employee.
In California, state officials seeking to cut down on money-laundering are thinking about tightening loopholes for all financial institutions, including currency exchanges.
At the moment, noted Gary W. Schons, a deputy California attorney general who has worked on the money-laundering problem, currency exchange houses “are virtually unregulated.”
Although the exchange houses proliferate all along the border, it is here in San Ysidro where the market has become most concentrated.
Several dozen money traders thrive in this tiny community of about 15,000 people, making them one of the area’s largest employer. Most houses are situated along a five-block strip of San Ysidro Boulevard--a cluttered, traffic-laden jumble of money exchanges, fast-food restaurants, gas stations and various other businesses that leads to the international boundary. Spanish is the predominant tongue.
These days, it is hard to imagine San Ysidro--or any other U.S.-Mexico border town--without a row of money exchanges, each prominently displaying their signs listing prices at which pesos may be bought and sold.
However, as recently as early 1982 the businesses were relatively rare on the U.S. side; small casas de cambio in Mexican border towns have traditionally provided exchange services to tourists and border residents who have long learned to think in two currencies. In San Ysidro, there was only one money exchange in early 1982.
The reason: Despite a severe devaluation in 1976 and occasional mini-devaluations in ensuing years, the Mexican peso still remained one of the most stable currencies in Latin America until 1982. The stability of the peso meant there was little profit for money-changers to make on the all-important “spread”--the difference in the prices used by the money houses to buy and sell pesos. A spread of 9 or 10 pesos in the buy and sell price can translate into tidy profits for high-volume money changers.
Hence, a trader who sells pesos at a rate of 500 to the dollar and buys them at 490 to the dollar is looking at a potential profit of 10 pesos on the dollar. That margin, of course, must also cover labor, rent and other costs.
In early 1982 the illusion of a stable peso vanished as the Mexican economy began to unravel, bedeviled by slumping oil revenues, a burgeoning international debt and high inflation. A peso that was valued at 27 to the dollar in February, 1982, nose-dived to 115 pesos to the dollar by mid-August.
By the end of 1982, there were more than 100 money exchanges operating along San Ysidro Boulevard and other border streets--many just free-lancers working out of trucks, on car hoods or on street corners. Long lines formed at the money houses, as Mexican citizens and others sought some security for their rapidly declining pesos. Along the border, those times are remembered as a crazy period of 24-hour days when just about anything seemed possible.
“That was a wild time that no one here will ever forget,” recalled Haskell, seated in a back room of Valuta’s office on San Ysidro Boulevard, his eyes fixed on the closed-circuit TV screens showing lines of people waiting to exchange money outside. “In those days you lived on cold hamburgers and cold french fries. No one ever got enough sleep. The whole crew worked the night shift.”
Today, a relative calm reigns at the exchange houses of San Ysidro. Clients, mostly Mexican citizens, still line up at the various houses seeking to buy pesos or dollars. They come to San Ysidro attracted by the convenience, the easy availability of dollars and pesos, and by rates and volume that are favorable compared to those offered in Mexico. Their numbers include the rich and the poor, migrant farm workers seeking to turn dollars into pesos and wealthy Mexicans seeking to cash in their pesos.
“Along the border, we need dollars to buy goods,” explained Clemente Miranda, a 31-year-old Tijuana shopkeeper who was recently buying dollars in San Ysidro to be used for purchasing goods in the United States. “In Mexico, it seems there are always bureaucratic problems when you want to buy dollars. Here, you can get them easily.”
“It’s always easier here,” added Marcos Cordova, a 28-year-old rancher from Ensenada. “On the other side, you always pay more for dollars. And a lot of time they don’t even have them to sell.”
The money traders’ market is based largely on the principles of supply and demand.
Theoretically, downward trends in the Mexican economy should be reflected in the value of the peso; the negative trends should soon translate into lines of Mexicans seeking to purchase dollars. In effect, the rises and falls of Mexico’s economy should be embodied in the free-market rate of the pesos.
Exchange house owners learn to watch trends in Mexico--everything from the price of oil to the changing minimum wage to street demonstrations in Mexico City--that may in some way affect the stability of the peso. And, at the same time, they always keep a close eye on the size of the lines at the money houses and the posted prices of their competitors.
Despite such precautions, money traders acknowledge that there is no crystal ball: The market is extremely mercurial; unexplained lags and mysterious mini-rushes are frequent.
“Sometimes it seems the only way to run this business is to do the most illogical thing,” said Anzar, one of the earliest peso traders along San Ysidro Boulevard.
Some houses also do a substantial amount of business via wire, transferring dollars to the accounts of wealthy Mexicans in exchange for pesos. Last month, the Mexican government issued new rules seeking to cut down such wire speculation by large U.S. banks and by exchange houses.
Exchange houses quickly turn around their supplies of pesos, selling them principally to Mexican citizens returning to Mexico, American tourists heading to Tijuana, and, in some cases, to other money traders. Managers must always maintain a delicate balance between holding too many and too few pesos.
It is a risky business. Exchange houses shut down almost as quickly as new ones open. The Valuta offices in San Ysidro and Los Angeles are in bankruptcy proceedings after incurring millions of dollars in debts.
Apart from economic trends, money traders on San Ysidro Boulevard also watch more mundane phenomena, such as the weather, that may affect their business. On a recent afternoon, Mike Haskell became somewhat anxious when he noticed lines of about a dozen customers waiting at Valuta at the end of a slow day.
“There’s too many people on line for a rainy Tuesday afternoon,” said Haskell, quickly referring to lists that compared Valuta’s exchange rates to those of other houses on the block. He decided that Valuta’s rates may be a tad too favorable, and an adjustment in the price of buying dollars might be needed.
Haskell and other money traders are less than contrite when asked about Mexican characterizations of them as unscrupulous speculators who are artificially deflating the rate of the peso. They say they simply provide a service--mostly for Mexican citizens who profess little faith in the value of the government’s currency.
“I’m not an opportunist. I’m a businessman,” Anzar said between glances at the commodity prices on his computer. “The Mexican government is responsible for its own problems. . . . Yes, I have a nice house, a nice car, but right now, no one is getting rich in this business.”
Last week, a kind of lull-before-the storm mentality seemed to pervade the exchange houses of San Ysidro.
Traders said they were awaiting a surge in business that usually occurs in December, as Mexican shoppers descend on the United States for the holidays and Mexican workers return to Mexico. Since a brief flurry of activity in late October when the peso hit an all-time low of 500 to the dollar, observers say the street has been unusually calm.
Lurking behind the scenes, there always seems be an unspoken fear that the fat times could be coming to an end.
“We’re at a turning point down here,” said Haskell, drawing on another cigarette and sipping black coffee. “Something’s going to happen pretty soon. Either it’ll be raining money, or we’ll all be in a rate war of attrition.”
