MEXICO CITY (AP) — President Andrés Manuel López Obrador’s party sparked an avalanche of criticism Thursday with a bill aimed at forcing the Bank of Mexico to ultimately buy all U.S. cash entering the country.
The central bank and opposition groups expressed concerns that such a requirement would violate the bank’s autonomy and leave it exposed to acquiring illicit money generated by drug cartels.
López Obrador has made a series of legislative movements that have puzzled the business community and sought to limit anti-drug trafficking activities by foreign government agents in Mexico.
The bill was passed in the Senate on Wednesday night and will now go to the Chamber of Deputies, where it still needs to be approved. Movimiento Regeneración Nacional, better known as Morena, said the initiative is aimed at ensuring that migrants can send money home in cash. The party says that if cash sent from abroad accumulates in Mexico, it could disrupt foreign exchange markets and encourage smuggling trade, in which migrants get worse exchange rates.
But the Bank of Mexico expressed its opposition in an unusual public statement issued Thursday. The institution noted that less than 1 per cent of the money migrants send to their families comes in US dollars or other cash currencies, as most remittances are sent via bank or telegraph transfers.
As for other sources of cash, foreign tourists sometimes spend dollars in Mexico, but there is much evidence that Mexican drug trafficking organizations send huge amounts of dirty money from the sale of drugs in the United States.
The Bank of Mexico said that in the first nine months of 2020, the country’s private banks were able to sell or ship back to the United States and other countries 98% of the 4.7 billion foreign cash that entered the country. Only about 100 million stayed in Mexico, he added.
It’s that money that López Obrador’s party wants the central bank to buy and add to its reserves.
But the bank warned that such an action would pose the following risk: once private banks know they can unload all their cash into the central bank, they could start to relax their anti-money laundering standards and start accepting illicit money deposits. That, in turn, could affect the Bank of Mexico’s relations with other central banks and lead other nations to impose restrictions on the entire banking sector in the country.
“ The impacts of the project would cause substantial impacts and risks,” the Banco de México statement reads.
The central bank also fears that the measure will be a first step for the government to tell it what to do, as was the case in previous decades.
From the 1970s to the early 1990s, Mexico went from one economic crisis to another due to excessive government indebtedness, corruption and lack of transparency, all favored by the presidency’s full control over the central bank. To combat that, the Bank of Mexico was granted autonomy in 1994, allowing it to decide without political influence in order to keep inflation and foreign exchange markets stable.