The existence of a Latin American central bank would give the region the opportunity to drastically reduce capital flight and the amounts of liquidity that countries have in the northern nations, which could be recovered and have functionalities for the financial integration of the area.
"This is possible, desirable, and imperative; however, the obstacles to overcome are the great interests of the mega-banks", said Andrés Arauz, from the Faculty of Economics (FE) of the UNAM.
At the conference "Payment system, capital flight and regional financial integration in Latin America", organized by the Institute for Economic Research, he said:
Mexico is the country in LA with the most capital abroad: as of December 2018 it had 117 billion dollars; followed by Brazil, with 74.7 billion dollars; and Panama, 54 billion (because the rest of the Latin Americans disguise themselves as Panamanian companies to take money out); Venezuela also has a big capital flight problem.
When we talk about the relative magnitude of the deposits of Latin American nations in foreign banks, he explained, we are talking about a large amount of money that exceeds 400 billion dollars, of which 150 billion dollars correspond to the non-financial sector, as reported in the statistics of the Bank for International Settlements, based in Basel, Switzerland.
Given this, he said, the alternative is regional financial integration. The Europeans faced the same problem: they had the United States as the main counterparty for their intra-European transactions; they said enough was enough and created the Target system, which allowed transactions to be made within their central banks.
And with Target 2, it became possible for transactions to be executed directly and cleared and settled at the European Central Bank. In this way, their dependence on transactions in New York was reduced, and they gained efficiency, agility, and margins of regional sovereignty.
It should be noted that the aforementioned statistics use the concept called "immediate counterpart", i.e., if a Chilean creates a company in the British Virgin Islands and that company deposits money in an account in the United States, it will be reported as corresponding to those and not to Chile.
More deposits and capital flights are corresponding to our countries, but they use strategies through the use of offshore structures -when a firm is located abroad and performs operations that are not regulated in the country of origin-, as revealed by the Panama papers, Pandora papers, etc., and all this is left out of the statistical information. "And let alone when capital escapes in non-monetary forms such as art, real estate, possession of metals, among others."
Latin Americans decide to hide their flight capital in the U.S. because of the international monetary hierarchy and because there is legislation - such as "bank secrecy" - that secretly protects those who deposit their resources.
Of the total amount of Latin American capital flight, 60 percent is in the neighboring country to the north; and of the non-financial ones, i.e., individuals, families, or companies, 85 percent is located in this territory. "So when we talk about capital flight abroad, we can think of the Cayman Islands, Panama, or other small Caribbean islands; however, the bulk of the problem is in the United States; that is why it is the only country in the world that refuses to exchange financial information".
The members of the Organization for Economic Cooperation and Development agreed to exchange financial data so that they can carry out tax controls, but our northern neighbors do not do so; instead, they obtain references of where their citizens have deposits in other parts of the planet.
The US has recognized the problem. In 2016 the Financial Crimes Enforcement Network, FinCEN, (Financial Crimes Enforcement), designated the city of Miami as a money-laundering center, and in 2019 the FBI opened an office in that city because it was established that there was a disproportionate amount of corruption there and "white collar" crimes were executed.
In the banking association called Florida International Bankers Association are numerous Latin American banks and also the world's mega-banks. "Miami concentrates a good part of the international monetary transactions of Latin American countries".
The case of Mexico is interesting: approximately 120 billion dollars from the financial sector have escaped, including 40 billion from the non-financial sector, according to statistics; so these figures must be multiplied by two, three, or four times, we do not know, due to the opacity of capital abroad.
We can create a figure, a sort of Latin American central bank that executes and settles the transactions carried out in the region, through the political, technical, and economic agreement to place this financial integration institution at the top of the Latin American monetary hierarchy, the expert proposed.
Commenting on the conference, Jonathan Badillo Reguera, from UNAM's Graduate Program in Latin American Studies, stressed that the four major clusters or explanatory variables that account for regional integration in LA are: infrastructure, political integration, how to harmonize the different economic development models, and financing to promote incorporation.
The proposal presented by Arauz is the common thread to reduce dependence on the mega-banks and to make it easier to trade within our region without having to pay for the extra-regional operation of the system, he concluded.