Banxico registers the highest growth in international reserves in five years

The international reserves of the Bank of Mexico (Banxico) stood at 195.667 million dollars at the end of 2020. It is the largest collection registered by the central institute in five years.

This reserve of international assets is made up of highly liquid currencies that are available at any time, the objective of which is to ensure that the central bank has the capacity to satisfy the demand for dollars that companies, the government and the public can make at any time. society to meet its obligations, explained the director of Economic Research at the Saver think lab, Luis Pérez Lezama, and the expert on monetary policy, Raymundo Tenorio.

According to the information contained in the Bank of Mexico’s weekly Statement of Account, at the end of December 31, an accumulation of reserves for 14,790 million dollars was completed, a figure that is also the highest since 2014, when registered an increase of 16,466 million dollars in 12 months.

Unlike that year, when there was an express program for the accumulation of assets, in 2020 they were strengthened by the net operations in foreign currency that Pemex and the federal government made with the central bank, in compliance with the Bank of Mexico Law.

In addition, a third component was presented that favored the increase in international reserves: the change in the valuation of assets and other operations, which contributed with 5.921 million dollars of the annual increase in the asset reserve in 2020.

Officials of the Bank of Mexico explained that asset valuation is the movement that results from the exchange rate appreciation of the national currency with respect to the different currencies that make up the international reserve.

Indicators of an optimal level

The expert in monetary policy and central banking, Raymundo Tenorio explained that some two decades ago, when emerging economies used to present problems in the management of their external accounts, the International Monetary Fund (IMF) warned that a good parameter to measure the reserves of international assets, was to have the equivalent of six months of imports.

A metric that, without being a recommendation, is more than fulfilled by Mexico with this stock of 195,667 million dollars reported as of December 31 ”, he commented.

According to the Saver researcher, Luis Pérez Lezama, there are four indicators to measure the optimal level of reserves.

The first is the percentage of reserves over the Gross Domestic Product (GDP), which currently corresponds to 8 percent. A level below the optimal level of 13% of GDP, recommended by international organizations, he said.

The second indicator is the ratio of reserves to the monetary base, which is equivalent to 100% of it, which implies that there is good support for the money in circulation.

The third indicator is the proportion of the Guidotti – Greenspan Rule, supported by the IMF, according to which countries must have at least a level of liquid reserves equal to or greater than the balance of external debt with maturities of less than one year.

Under this metric, Banco de México’s international reserves represent 40% of federal government liabilities.

The fourth indicator, Pérez Lezama refers, is the proportion of international reserves against growth, where he highlights that Mexico’s great problem has been that purchasing power has been lost, and the ideal would be, from his point of view, to have 300 or $ 350 billion in reserves.

In the opinion of both researchers, since Banco de México is non-profit, and its sole objective is to preserve purchasing power while guaranteeing stability, maintaining this balance of reserves does not generate costs or any risk.

The Engines of Increase

According to the governor of the Bank of Mexico, Alejandro Díaz de León, after a placement of debt from the oil company or the government abroad, both issuers have to exchange the currencies obtained with the central bank to get Mexican pesos. And the currency purchased by Banxico is counted as an international reserve.

In this regard, the Executive Secretary of the Economic Commission for Latin America and the Caribbean (Cepal), Alicia Bárcena explained from Santiago de Chile that the accumulation of international assets that the central banks of the region achieved during the year, shows a good use of the Dollar liquidity injected by monetary authorities of advanced economies, as a measure to guarantee the proper functioning of the international financial market.

Information from the central bank confirms that in the course of 2020, Petróleos Mexicanos (Pemex) contributed 34.8% of the increase in the reserve, with the sale of dollars; while the federal government contributed 33.5% of the reserves accumulated in the year and the asset valuation favored with 40% of the annual increase in reserve assets.

The historical maximum of the reserves was in January 2015, when they totaled 196,010 million dollars.

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