(Bloomberg) -- Mexico will likely approve a bill making the central bank the nation’s dollar buyer of last resort following changes that will ease concerns it could force the institution to take illicit funds, a top senator said.
Lawmakers will hammer out details with central bank and finance ministry officials in January, clearing the way for the lower house to approve the proposal in February, Senator Alejandro Armenta said in a phone interview. If the bill is modified, the senate would have to hold a final vote before it becomes law.
Armenta’s comments are the latest sign lawmakers won’t back down on a bill that has Mexico’s central bank, known as Banxico, and many economists up in arms. Detractors say the bill threatens policy makers’ autonomy and that it could jeopardize financial stability. Backers say the legislation is needed after a U.S. crackdown pushed some of its banks to sever ties with Mexican counterparts, which now cannot offload excess dollars.
“We are going to approve the law. This we want to make clear,” said Armenta, who heads the senate’s finance committee. “We cannot put the concerns of the financial system at the center of our interests while the population suffers from the problem of exchanging dollars when they return from the United States, after working and leaving their families. We have to find a balance.”
Armenta met central bank Governor Alejandro Diaz de Leon along with lower house leaders on Dec. 23, and he said the bank head was receptive to their position. Modifications to the bill will ensure it helps migrants while not involving illegal funds, he said, without providing details on those changes. The bill forces the central bank to buy dollars from Mexican banks that can’t unload them elsewhere.
The senator, who’s from President Andres Manuel Lopez Obrador’s Morena party, doubled down on the view that the proposal is needed to help Mexican migrants get dollars into the banking system. He said lawmakers didn’t agree with the central bank statistic that only 1% of remittances sent home from workers living abroad is in cash.
More than five million Mexicans travel back and forth between both nations each year, Armenta said, bringing in funds that are not captured in central bank data. “Imagine the billions that are entering,” he said.
The press office of Mexico’s central bank didn’t immediately respond to multiple requests for comment.
The proposal continues to face intense scrutiny. Central bank deputy governor Jonathan Heath has said the legislation would benefit one bank in particular, and Senator Emilio Alvarez has said Grupo Salinas lobbyists pushed the bill in the Upper House.
Grupo Salinas controls Banco Azteca and, its owner, Ricardo Salinas Pliego, has been the most high-profile supporter of the legislation. Still, Armenta said accepting the idea that one bank was driving the bill showed “a supreme degree of ignorance of the migrant reality of our country.”
Mexico’s peso gained sharply on Dec. 15 when Lower House lawmakers delayed a vote on the bill, which the central bank has warned could expose it to money laundering sanctions and disrupt swap lines with the U.S. Federal Reserve.
Mexican debt rating company HR Ratings said in a Dec. 21 note that passage of the law could trigger an increase in risk perception, as well as higher long-term interest rates, capital outflows and a depreciation of the peso, which could limit the central bank’s room to further lower interest rates.
“This could affect the relationship of Mexico’s central bank with other central banks,” said Felix Boni, head of economic analysis at HR Ratings, in a phone interview. “It may be possible to reach an acceptable compromise with technical modifications, but that is not clear at this point.”
More broadly, Lopez Obrador has made it clear the central bank needs to take on greater responsibility in developing Mexico, Armenta said. That role, added the senator, should also include a consensus on how the bank uses its international reserves.
“What is their use if the reserves are just saved, sitting in vaults or as electronic data?” Armenta said. “The Bank of Mexico is one of the country’s institutions that has to adapt to the changes that the country needs.”
(Adds comment on risk to interest rates, currency in paragraphs 11-13.)
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