Mexico’s International Reserves Grow by US$5.66 Billion in 1H23

Mexico's central bank reserves reached a significant milestone, totaling US$204.13 billion as of July 14. This marks the second-highest record since September 2021 when the International Monetary Fund (IMF) deposited Special Drawing Rights (SDRs), bolstering central banks' capacity to respond to external pressures.

According to the Bank of Mexico (Banxico), international reserves increased by US$5.66 billion during the first half of 2023, marking the highest accumulation recorded in six months since the pandemic started in 2020. Reserves in 2023 surpass last year's accumulation during the same period by US$55 million. This growth can be attributed to the appreciation of the peso against various foreign currencies and foreign exchange operations with the federal government. Last week alone saw a reserve increase of US$1.06 billion due to changes in the global valuation of Mexico’s international assets, reports Banxico. 

Banxico decided to conduct open market operations with banking institutions to offset a net liquidity expansion of US$4 billion registered by the end of last week. According to Banxico’s report, the application of these economic measures is mostly due to an increased currency demand that contracted over US$921 million and a significant withdrawal from the Treasury of the Federation's resources amounting to US$4.9 billion.

The country's resilience is strengthened by having access to dollar liquidity through the Flexible Credit Line (LCF), a precautionary instrument complementing reserves and safeguarding economic stability in the face of adverse external conditions. This fund can be used in economic crises. Mexico’s LCF has US$41 billion dollars available, which is added to the existing stock of US$204.13 billion in reserve assets held by Banxico, adding up to a total liquidity of US$251.13 billion available.

Mexico’s economy is considered to be stable, which is often perceived as a sign of financial strength. This stability enables Mexico to conduct international transactions and import payments, enhancing its investment appeal and position as a promising trading partner. 

Maintaining an adequate level of reserves has always been a delicate task. On the one hand, maintaining large international reserves can immobilize a significant amount of assets that could have been invested in productive projects that had the potential of generating a higher economic return. On the other hand, having limited reserves can leave the country significantly vulnerable to potential financial crises. 

Mexico's international reserves show significant stability, providing the country with a multimillion-dollar financial shield and ensuring sufficient liquidity to tackle financial contingencies.