Banxico Frets Over Senate Bid to Force It to Buy Dollars

Mexico’s senate may vote as soon as next week on a currency bill that has sounded alarm bells at the central bank and risks triggering sanctions from the U.S.

The legislation would force the central bank to buy up foreign currency from local banks, who end up with excess dollars from cash remittances and tourism.

The proposed law is intended to ease currency transactions in a market that’s been hamstrung by U.S. money-laundering controls, but carries a risk that the central bank itself could face penalties for handling dollars that may be of dubious origin.

International lenders have cut ties with Mexican counterparts in recent years to shield themselves from potential sanctions.

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Migrants use wire transfers for most of the approximately $40 billion they’ll send in remittances this year. But some bring cash back, while tourists and the proceeds of drug trafficking add billions of greenbacks into the system every year that Mexican banks can not easily unload.

Banxico Frets Over Senate Bid to Force It to Buy Dollars

And as more and more dollars flow into Mexico, it’s getting harder to get them out again and back into the U.S. financial system. Under the bill, Mexico’s central bank would add the dollars it bought to its international reserves.

Senator Alejandro Armenta, head of the finance committee in the Senate and a member of President Andres Manuel Lopez Obrador’s Morena party, told Bloomberg News in a telephone interview that the bill could be brought to the floor as early as Dec. 8, allowing for a vote later next week.

Armenta said the bill was needed in order to help process dollars brought home by migrants.

The introduction of the bill last month by Morena Senate leader Ricardo Monreal rattled the central bank and finance officials.

Central Bank Governor Alejandro Diaz de Leon warned the bill could open the bank itself to money laundering sanctions. He said that lawmakers should find an appropriate way to process dollars that would not expose the nation’s international reserves to risks.

“We are attentive to collaborate to find the best solution,” Diaz de Leon said last week. “But in the most appropriate way and that does not put the financial system at risk.”

If the bill is approved, U.S. banks could become reluctant to work with the Mexican central bank and the U.S. Treasury could potentially sanction Mexico, said Kevin Carr, founder and CEO of Washington D.C.-based financial technology firm Finiden and a former U.S. Treasury attache to Mexico.

“This puts the central bank squarely in danger of taking drug proceeds,” Carr said. Still, he doubted U.S. authorities would move to punish Banxico due to the deep relationship between the countries. “But it does put the central bank in an awkward situation,” he said.

Armenta said officials from the central bank and finance ministry, as well as from the country’s bank lobby, would join lawmakers in private sessions starting on Thursday to discuss modifications after Diaz de Leon and Finance Minister Arturo Herrera expressed concerns to him.

“We will be working so that in the next few days we can mature this bill,” he said. “We do not intend to relax the elementary requirements to combat money laundering,” he said.

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