Mexico Senate Passes Bill to Make the Central Bank Buy Unwanted Dollars

Mexico Senate Passes Bill to Make the Central Bank Buy Unwanted Dollars

Mexico’s Senate approved Wednesday a bill that will force the central bank to buy dollar bills from banks that can’t place them elsewhere, ignoring concerns from policy makers that the bill could make the bank take illegal drug money.

Lawmakers brought the bill to a vote, only hours after top members of the country’s bank association had warned that the bill threatened the autonomy of the central bank and could expose it to sanctions for money laundering if it was approved. If the bill is now approved in the lower house, President Andres Manuel Lopez Obrador said Thursday it should be obeyed.

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. Lawmakers introduced a tweak to the original bill, presented by Morena Senate leader Ricardo Monreal, that said Banxico would not have to buy dollars from any one on government black lists.

Monreal said the bill was needed to help migrants who return for the holidays with wads of cash. “This is no attack on central bank autonomy,” he said. “Banco de Mexico has to be less conservative.”

Banxico said in a statement late Wednesday that senators had ignored its input, and noted the changes to the bill did not ease its concerns.

Following money laundering allegations against HSBC Holdings Inc. and Wachovia Corp. over a decade ago, U.S. banks have increasingly severed relationships with Mexican institutions to protect themselves from potential sanctions. That is not much of a problem for the global banks operating in Mexico like Banco Bilbao Vizcaya Argentaria SA or Citigroup Inc., but it crimps business by Mexican banks, which can’t easily unload dollars.

The peso weakened 0.4% to 19.9670 per dollar on Thursday morning, pressured by the senate bill as well as a worldwide selloff in stocks.

Opposition lawmakers said the bill had been forced through the Senate by Lopez Obrador’s Morena party without listening to the concerns of the central bank. The bill was introduced, unexpectedly, late last month.

Senator Emilio Alvarez Icaza, an independent, said the bill would turn Banxico into “a money launderer.”

Alvarez said lobbyists of Grupo Salinas had pushed lawmakers to approve the bill. “Is this bill dedicated to one of the president’s special allies to whom he wants to do a favor?” Alvarez said. Grupo Salinas is controlled by Mexico’s third-richest man, billionaire Ricardo Salinas, whose Banco Azteca has played a key role in disbursing Lopez Obrador’s cash aid programs.

Grupo Salinas spokesman Luciano Pascoe said in a text message that the group did “not have any comments on the rumors a senator spreads.”

Even Senator Nancy de la Sierra, a member of the ruling party coalition, said the issue of migrant remittances was used to justify the bill, though such cash remittances are minimal.

During his morning press conference on Thursday, Lopez Obrador refrained from saying if he backed the bill or commenting on why it was needed, but he said that Congress was no longer controlled by special interests as it was in prior administrations he called corrupt.

“If [the bill] was approved by the Senate and is passed in Congress, they are reforms that must be followed,” he said. “Before, the legislative power was at the service of economic and financial interests. This was what defined it.”

Central bank board member Gerardo Esquivel, who has supported the ruling party coalition, said the bill’s passage “puts international reserves at risk while attacking the Bank of Mexico’s autonomy.” Writing on Twitter, he said he hopes the lower house “corrects this situation.”

Earlier Wednesday, Eduardo Osuna, CEO of BBVA Mexico, and Barclay’s country chief Raul Martinez-Ostos had criticized the bill. Luis Nino, president of Mexico’s bank group ABM and the chairman of Banco Azteca, said that Mexican banks had solid anti-money laundering protocols in place and that it was not the place of ABM to reject legislative proposals.

In a separate vote Wednesday evening, the Senate also ratified the president’s nomination of Finance Ministry treasurer Galia Borja Gomez as a member of the central bank board. Former Economy Minister Graciela Marquez was also approved to the board of the national statistics agency.

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