The international reserves of the Bank of Mexico (Banxico) grew by 8.18% in 2020 to a total of USD 195,667 million despite the crisis of the covid-19, informed this Tuesday the central bank. The reserves of 2020 imply an increase of USD 14,790 million compared to the closing of 2019 when Banxico reported USD 180,877 million. With these figures, Mexico approaches its historical maximum of international reserves of USD 196,010 million, reported in January 2015.

Banxico's international reserves are calculated by subtracting the gross reserve, which in 2020 reached USD 199,056 million, from the total liabilities at less than six months, which amounted to USD 3,389 million. Of the USD 14,790 million added to the reserves, USD 5,148 million corresponded to Petróleos Mexicanos (Pemex) and USD 4,960 million to the federal government.

Banxico said that international reserves are made up of foreign exchange and gold owned by the central bank, Mexico's position with the International Monetary Fund (IMF), and foreign exchange from financing obtained for exchange regulation from the IMF and other agencies. This announcement occurs while Mexico faces the crisis of the covid-19 pandemic, which accumulates more than 1.45 million cases and almost 128,000 deaths in the country.

The crisis left a contraction of 9.6% of the GDP in the first nine months of 2020.

The Ministry of Finance and Public Credit (SHCP) estimates that the economy contracted by 8% in 2020 with a 4.6% rebound by 2021. But Mexican President Andres Manuel Lopez Obrador has promised that he will not put the country in debt or give fiscal support to companies by defending macroeconomic stability.

Even so, in its latest public finance report, the SHCP reported a public debt of 11.7 trillion pesos (about USD 585 billion) as of November, which is equivalent to annual growth of 3.6%. The Treasury recognizes that Mexico's public debt could represent 53.6% of the GDP in 2020, above the 45.1% registered in 2019.

On the other hand, this Monday Banxico reported that Mexico received USD 36,945.63 million in remittances between January and November 2020, an increase of 10.88% concerning the same period in 2019. Although December data is still missing, with these figures Mexico already broke the record in remittances received in any year, reached in 2019 by a historical amount of USD 36,048 million in the whole year.

25 years of autonomy and advocacy of Banxico

The Mexican Constitution requires the central bank to have as its main objective the preservation of the value of the currency. This year, the Bank of Mexico (Banxico) celebrates 25 years of being an autonomous institution; that is, it cannot be forced to lend money to the government, and no authority can order it to provide credit.

Such is the essence of the autonomy conquered by the central institute with the reform of Article 28 of the Constitution in 1993, which came into force on April 1, 1994. Being autonomous implies that it determines the policies and instruments to achieve its priority objective, which is to maintain price stability, as well as to perform its other functions.

Thus, if the government comes to have a money problem, not even the President of the Republic can demand that the central bank bail him out or request support to finance public spending. The Mexican Constitution orders the central bank to have as its main objective to preserve the value of the currency; that is to say, to combat inflation so that consumer prices do not nullify the value of workers' salaries.

The Bank of Mexico has two other secondary objectives, which are to promote a healthy financial system and the proper functioning of the payment system. In addition, it has budgetary and management independence, because by administering the country's international reserves, which amount to nearly 179 billion dollars, it obtains returns on the investments of these assets.

To fulfill its primary mandate, it was proposed as a punctual goal that inflation should not exceed a level of 3%, with a range of variability of plus/minus one percentage point. Since January 1999, Banxico adopted the inflation targeting strategy as a mechanism to improve communication with the public and strengthen credibility in the central bank.

If it deviates from this target, it has to react to prevent the purchasing power of Mexicans from deteriorating, as inflation is considered a tax that affects lower-income earners. To combat inflation, Banxico has as an instrument of monetary policy the reference rate, which serves to put a cost to money. If the rate rises, the cost of money via credit and financing becomes more expensive. In addition, being an autonomous bank, no one can ask you to raise or lower the rate to stimulate or contract the economy.

As a central bank, it is responsible for providing money to the economy, for which it has two note factories, and has the power to order the Casa de Moneda de México to mint the cash. In addition, the central bank has the exclusive power to place notes and coins among the public. The issue of banknotes and coins is made according to the demand of society. Hence, no one can order or ask you to issue more paper money or notes that are required.

Board of Governors

Before obtaining its autonomy, the Bank of Mexico was headed by a general director who was directly appointed by the chief executive in turn. Today it is headed by a governor and decisions are made collegially through a governing board made up of five members: the governor, who has a casting vote, and there are four deputy governors. Together, the five members are responsible for conducting monetary policy.

While all members of the governing board are appointed by the federal executive, the Senate of the Republic must ratify the appointments. They are appointed in such a way that they are not in function of the political cycles, and they must meet certain requirements to occupy the positions.