By KELIN DILLON
Considerable controversy has arisen in Mexico over the Senate’s approval of reforms to the Bank of Mexico (Banxico), known as the Monreal Law, named after Senator Ricardo Monreal, who drafted the bill.
Now, Secretary of Finance and Public Credit (SHCP) Arturo Herrera Gutiérrez has announced a postponement of these reforms until February 2021.
“Clearly, very important implications for the Mexican financial system were not properly analyzed,” said Herrera. Now, the provisions of the law, and their potential effects, will be given more time for debate.
Approval in the Senate was passed on Wednesday, Dec. 9, and would still must pass through the lower house of congress to become law.
According to the National Regeneration Party (Morena), which currently controls both houses of congress, the Monreal Law was written to assist Mexican citizens who are working abroad with remittances back to their families in their home country.
Remittances are the number one legal source of revenue in Mexico. Upwards of 10 million families in the country are living off of remitted wages.
Due to high exchange rates and privatized exchange enterprises, workers currently lose an average of 30 percent of their wages that are sent home to Mexico, according to government statistics.
As proposed in the Monreal Law, Banxico would directly exchange the workers’ money, which would theoretically provide more pesos per dollar on the exchange rate.
“The project is beneficial for Mexicans since the reforms will allow those who receive remittances from abroad to keep the value of their money at the current legal parity, preventing businesses or any agent from taking them at a lower value,” said Monreal, who is the senate majority leader of Morena.
Monreal also said that the law would assist those employed in the tourism industry, who are frequently tipped in dollars.
The Bank of Mexico refuted Monreal’s point by releasing a statement on Thursday, Dec. 10, saying that less than 1 percent of remittances come into the country as cash, and that most are actually sent through wire transfers.
Banxico’s statement also highlighted the concern that the Bank of Mexico could lose its own autonomy if the Monreal Law passes congress.
Critics have pointed out that forcing Banxico to buy all foreign cash could lead to widespread money laundering in Mexico, as the law would forfeit the bank’s right to deny service.
Many banks in Mexico currently only exchange money to their customers, or simply don’t exchange foreign cash at all, due to concern about its origin.
The Monreal Law would remove the Bank of Mexico’s choice in the matter.
The law also includes a provision that foreign capital cannot be repatriated and must be purchased by the Bank of Mexico to add to the country’s international reserves.
The Mexican Banker’s Union previously sent a warning to government officials about the potential effects of signing this into law on both Mexico and the world. They argued that the Bank of Mexico’s international reputation is at risk if strict anti-money-laundering controls are not set into place before the law goes into effect.
The union also raised concerns about the Monreal Law undermining Mexico’s economic stability, and others vocalized its potential impact on foreign perception of the country.
This law has the potential to “undermine the two-way relationship of Mexico with other countries, especially the United States,” said Alejandro Díaz de León, governor of the Bank of Mexico.
Carlos Rojo, executive president of the Association of Banks of Mexico (ABM), said a conversation must occur with the United States to find a suitable solution concerning Mexico’s surplus dollars in cash, rather than just absorbing it into the federal reserve as the new law suggests.
With the reform delayed until February of next year, debate on the law could now potentially address critics’ concerns.