Risk and reward: Currency substitution and acceptance of the Mexican peso by firms in the United States southern frontier

This paper explores the usage of a soft currency in a hard currency environment. A stratified random sample of 300 firms based along the U.S. side of the Texas-Mexico border was utilized to determine the degree and nature of the acceptance of the Mexican peso in retail transactions. Our results suggest about one-quarter of all retail firms in the Texas border MSAs of El Paso, Laredo, and the Lower Rio Grande Valley (McAllen and Brownsville) accept the Mexican peso. A logistical regression to determine what factors were significant in the firm-level decision to accept Mexican pesos indicates that location within the border area, distance from a border crossing, firm size, firm type (retail category), and presence (local, regional or national firm) were all significant in the decision to accept/reject the peso.