Banxico Foreign Cash Debate Delayed

The debate on changes to the law governing Banxico’s purchase of foreign currency in Mexico did not take place in the Chamber of Deputies on Monday, suggesting the backlash against the proposal has prompted reconsideration within government.

The reform to the Bank of Mexico Law, which would force the central bank to purchase foreign cash currency, had been passed in the Senate last week and would have been expected to be debated today. However, the strong reaction against the law change, which critics believe would put Banxico in severe risk in the international markets, appears to have put a pause on procedures, at least for now. Earlier on Monday morning, Bloomberg reported that the Chamber of Deputies did not include the debate on its legislative agenda.

Last week, Mexico’s commercial banks, including members of ABM, offered Banxico their support against the changes to Art. 24 and 30 of the Bank of Mexico Law. Changes to the law “should not affect in any way the autonomy of the Bank of Mexico,” the ABM statement read.

AMB echoed Banxico’s own concerns, made public the week prior, that forcing the bank to purchase foreign cash in Mexico would risk associating it with money derived from illicit sources. The impossibility of removing all dirty money from Mexico’s financial system puts Banxico in harm’s way of international authorities which clamp down on illicit finance. “Cashflows from illicit activities are possible, which can represent a significant risk for the domestic financial sector in its interaction with the international financial system,” Banxico’s statement warned.

Former PRD leader Porfirio Muñoz Ledo yesterday announced his opposition to the “dangerous” modification of the laws through Twitter. “Attention colleagues. The Senate minute to modify the Bank of Mexico Law is very dangerous. It forces this institution to buy all the dollars sold to it without verifying their origin. This implies involving Banxico in illicit activities,” he wrote.

The proposed changes intend to provide oversight on the source of foreign cash currency in Mexico via the application of a “receipt” system. It should improve the certainty around money for those who work in sectors commonly dealing with foreign cash, like tourism, or for those families that rely on cash sourced from abroad through remittances, say proponents.

The presence of money from illicit activities in Mexico is likely. The international narcotics trade between Mexico and the US is, according to US Senator David Purdue, worth US$500 billion. In 2012, HSBC was fined a record US$1.9 billion for its involvement in money laundering by Mexican cartels.