Will New Legislation Weaken the Bank of Mexico's Autonomy?

Financial Services Partner Alejandro Landa Thierry was featured in the Inter-American Dialogue's biweekly Financial Services Advisor Q&A on proposed legislation in Mexico that would require the country's central bank to accept excess dollars that other banks are unable to repatriate in the United States. Among the criticisms of the bill are that it would violate the central bank's autonomy and potentially expose it to money laundering. Mr. Landa Thierry elaborated on some of the risks the bill poses to the central bank and to the Mexican peso.

"If enacted, the proposed legislation would oblige the central bank to be the buyer of last resort for cash dollars that Mexican banks cannot exchange. This is a risky endeavor," he said. "If the central bank buys the dollars that the Mexican institutions cannot change, they would be added to international reserves. Because part of the cash could be connected to illicit operations, there is a risk of 'infecting' the reserves that function as backing for the Mexican peso. This negative perception could certainly affect the value of the Mexican peso."

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