Mexico Central Bank Wins Respite on Law It’s Trying to Block

Mexico’s central bank won a respite when a bill that could force it to buy money of dubious origin was left off the congressional agenda for Monday.

Banco de Mexico’s efforts to derail the proposal also got a boost when the country’s private banks and the most influential business lobby came out in support of the central bank on Sunday.

The legislation, which won senate approval last week, would force Banxico -- as the central bank is known -- to buy foreign currency from local banks, which end up with excess dollars from remittances and tourism. Many of the dollars circulating in Mexico come from drug trafficking or other illegal activities, and officials see a risk that the central bank could face U.S. sanctions for inadvertently handling dirty money.

Prospects for passing the legislation this week dimmed after the lower house didn’t include the bill for debate on Monday as initially expected, according to a copy of the legislative agenda seen by Bloomberg News. Since congress goes into recess for the Christmas holidays on Tuesday, this may mean that the bill gets pushed to next year.

On Sunday, Mexico’s bank association, which gathers top lenders including Banco Santander Mexico, the Mexican unit of Banco Bilbao Vizcaya Argentaria SA and Citigroup Inc.’s local unit Citibanamex, issued a statement attacking the legislation, and supporting the central bank.

The proposed law would increase the risk of money laundering and terrorist financing and hurt the economy by undermining “the international confidence gained over many years by the Bank of Mexico and by the Mexican banks,” the lenders said in the statement.

Banxico also issued a statement on Sunday, saying that it was open to working with lawmakers in finding solutions to help the banks unload their excess dollars.

Gummed Up

Supporters say the bill would make it easier for Mexican migrants to exchange dollars in a market that’s been gummed up by tightening U.S. money-laundering controls.

On Saturday, senate leaders from the ruling Morena party said the majority backed the bill and that the central bank should put controls in place to reduce the risk of accepting illicit cash. The bill will prevent migrants from having to sell dollars at a loss to money changers, the lawmakers said.

“We are not attempting nor do we intend in any way to limit the autonomy of the Bank of Mexico,” Ignacio Mier, Morena’s leader in the lower house, said in a phone interview, rejecting that congress is trying to fast track the bill.

Mier said lawmakers would hear testimony from the head of Mexico’s bank association on Monday.

The central bank says that cash makes up just 1% of total remittances and doesn’t justify the collateral damage the bill might cause.

Since most remittances are wired home the whole stated justification for the bill is questionable, said Carlos Serrano, chief economist at BBVA Mexico.

“This will not be a benefit for the great mass of Mexican workers in the United States, nor for their relatives in Mexico,” Serrano said.

Read More: Mexico Billionaire Supports Forcing Central Bank to Buy Dollars

President Andres Manuel Lopez Obrador has said last week lawmakers’ decision on the matter should be respected. The central bank, in the meantime, will consider challenging the law in the Supreme Court if it passes on the grounds that it violates the independence of the central bank, Governor Alejandro Diaz de Leon said. Lopez Obrador had vowed to respect the authority’s autonomy.

The bill was approved by the senate on Wednesday after lawmakers from Morena ignored the concerns raised by the central bank. If the lower house makes any changes, it would have to be sent back to the senate for further debate.

Sergio Luna, who recently stepped down from a post as chief economist at Citibanamex, said passing the bill would act as a magnet for illicit money from around the world.

“This would draw cash from all the oligarchs in the world,” he said.

©2020 Bloomberg L.P.

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