Banxico Offers to Finance Mexico Banks Stuck With Dollars

Mexico’s central bank will lend money to local banks that can’t sell bulk dollars to the U.S., a move meant to satisfy lawmakers who wanted to force the nation’s monetary authority to purchase the greenbacks.

The pledge to help Mexican banks was unveiled Monday as part of new measures to help migrants access banking services and get better exchange rates for dollars they bring home.

Banxico, as the central bank is known, will work with local lenders with “justified difficulties” in getting rid of bulk cash as well as try to improve relations with U.S. banks, Governor Alejandro Diaz de Leon said.

The plan provides an alternative solution to a bill passed by Mexico’s Senate that would force the central bank to purchase dollars from local lenders who can’t find correspondent banks in the U.S. that would buy their cash. The central bank argued the measure could force it to take dollars of dubious origin and open it up to money laundering sanctions from U.S. authorities.

“The solution of the Senate was way, way worse than the problem,” said Sergio Luna, Citibanamex’s former chief economist who retired late last year. “With this, Banxico offers something that finally makes sense.”

Monday’s plan also includes using President Andres Manuel Lopez Obrador’s Banco de Bienestar, or Wellbeing Bank, to help migrants open Mexico accounts from the U.S., as well as other measures so they can change dollars at a better rate.

“The proposals we’re making today respond to the fundamental concern that was to ensure migrants have access to an adequate exchange rate safely,” Finance Minister Arturo Herrera said.

Mexican banks accumulate vaults of dollars that are expensive to maintain. To get rid of them they need to have a U.S. correspondent bank that will buy the cash and credit the Mexican bank with funds. The proposed measure would provide banks in Mexico with financing to offset a lack of liquidity caused by the unchanged dollars. The dollars could be used as a kind of guarantee on the loan, though the terms and conditions were not clear. Bloomberg reported earlier on the draft of the plan.

The proposal would get around the risk of sanctions against the central bank, said Marco Oviedo, chief Latin America economist at Barclays.

“To the extent that Banxico does not get involved in the sale of dollars, the risk is eliminated,” he said.

Billionaire Ricardo Salinas, the owner of Banco Azteca, was the only top banker to publicly back the Senate bill by arguing that Mexican banks had some of the strictest controls in the world. Global lenders operating in Mexico have opposed the bill and Lopez Obrador said lawmakers should find a way to help migrants without raising conflicts with international institutions.

Shares of Salinas’s TV Azteca closed 20% higher as the news was seen as a boost to his Grupo Salinas, which controls Banco Azteca and the TV network.

The senators who brought the original bill said the legislation is needed for the good of the migrants, who are exploited by small-time money changers. They also said the legislation was needed because U.S. banks no longer wanted to take on the risk of accepting money from Mexican lenders. Lower house lawmakers started to review the bill this month.

©2021 Bloomberg L.P.

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