Remittances Records; Banxico Warns of DangerBy Peter Appleby | Thu, 12/03/2020 - 17:13
Changes to the collection of foreign currency cash in Mexico have concerned Banxico, while the Central Bank’s governor has said that Mexico’s economic recovery depends firmly on the US. Meanwhile, Mexico has secured verification rights through USCMA and remittances flow into the country, breaking records once again.
All this and more in The Week in Finance.
Changes to a Banxico law that effectively puts the central bank in charge of the collection of foreign currency cash in Mexico could put the bank at risk, said Banxico. Though the changes will have positives, including helping families that rely on remittances and those that work in tourism, the changes require Banxico to “purchase” foreign cash currency and effectively guarantee where it came from. A receipt system will be put in place that gives information on the money’s source, thereby reducing the chance that the money came from illicit activities.
Yet, Banxico warned that no system can guarantee to stop money derived from illegal operations entering Mexico and could place the bank at risk when involving itself with international financial systems.
Mexico will now be able to verify product components, giving the country a right it never received in the old NAFTA. Verification rights can lead to preferential tariff treatments, said the Mexican government’s formal USCMA report.
“For a product to receive preferential tariff treatment according to UMSCA, it has to comply with a minimum of productive processes, manufacturing operations or the contribution of added value made in the countries that make up the treaty,” it stated. According to the report, the country’s automotive industry will be boosted by verification rights.
Banxico Governor this week underlined the deep connection between the Mexican economy and that of its neighbor to the north, saying that “a recovery in the dynamics of the US economy is essential for the whole world but particularly for Mexico.” The US is Mexico’s largest trading partner and in 3Q20, Mexican exports rebounded in response to increased demand in the US. Other factors, like the remittances that millions of Mexican families rely upon, emphasize this economic bond.
There is concern surrounding the position of incoming president, Joe Biden, whose promise to push the world’s largest economy towards carbon neutrality could impact Mexico’s growing fossil fuel-based energy industry.
Remittances reached US$33.564 billion for the year in October, making 2020 the year with the highest remittances inflow since records began in 1995. Remittances’ inflow jumped 10.43 percent year-on-year against 2019 and proved experts who had predicted a drop in remittance incomes due to the pandemic wrong.
Most remittances arrive from the US, where 36.6 million Hispanics of Mexican origin live, according to a Pew Research Center report from 2017. Remittances provide a lifeline for millions of Mexicans and have proved essential during a crisis that has claimed hundreds of thousands of jobs.