Mexico's central bank to offer peso coverage contracts

Mexico's central bank says it will sell $20 billion in peso coverage contracts to cushion the risk of holding the country's currency.

The Bank of Mexico said in a statement that "in recent months the peso has shown a high degree of volatility in exchange rates against the U.S. dollar, which is not consistent with the country's economic fundamentals."

The bank said Tuesday it will start with an initial auction of $1 billion on March 6, for contracts of 12 months or less on a renewable basis.

How much contracts cost will depend on exchange rates.

The peso trades on futures exchanges. It has dropped in value by 12 percent against the U.S. dollar over the last year and closed stronger at 20.15 to $1 on Tuesday.