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As a consequence of the revolutionary conflict, mistrust in paper money and the destruction of the monetary system in force until that moment ensued.
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In the promulgation of the Political Constitution of the United Mexican States, the proposal of a Single Issue Bank was established in Article 28, where the Constitution establishes that the issuance of the currency would be charged exclusively to a bank that would be "under the control of the Government".
Its regulations were pending for almost a decade. -
The League of Nations issued a statement during the International Financial Conference held in Brussels, where it expressed the need for all countries to have a central bank, due to the shortage of public funds.
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Plutarco Elías Calles inaugurated the Bank of Mexico, opening its doors on September 1, 1925 in a solemn ceremony, attended by the most outstanding figures of politics, finance and business of that time.
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The Banco de México was given, exclusively, the power to create currency, both through the minting of metal pieces and through the issuance of banknotes, and as a consequence, it was charged with regulating monetary circulation, interest rates and the exchange rate.
The new body was made an agent and financial advisor and banker to the Federal Government, although commercial banks were left free to associate or not with the central bank. -
A controversial Monetary Law is promulgated by which gold is demonetized in the country.
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The Bank's powers to operate as a commercial bank were withdrawn, the association of banks with the Central Institute was made mandatory, and the rules for issuing banknotes were made more flexible.
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Regulate the monetary circulation, the interest rate and the foreign exchange rate. Take charge of the service of the Federal Government Treasury. Centralize bank reserves and become a bank for banks and a lender of last resort.
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The price of silver rises steadily and leads to an unprecedented crisis. There is a risk that the intrinsic value of the coins of this metal will exceed their face value.
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A new and orthodox Organic Law is promulgated
It responds to the motivation of ridding the Banco de México operation of any "inflationary note" by adopting very strict rules for the issuance of means of payment.
Particular emphasis was placed on this regulation in terms of limiting the credit that the central bank could grant to the Government.
NEVER PUT INTO EFFECT -
Reforms were carried out in relation to the limits of the credit that the Bank could grant to the Government, as well as in relation to the type of paper that it could acquire in its operations with commercial banks.
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Mexico is flooded with floating capital or "swallows" seeking bank refuge in our country.
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Until then the mechanism of the Bank resembled the machinery of a clock, in the sense that it could only be operated "forward".
This is how an odyssey began: to develop the appropriate regulatory mechanisms for a central bank operating in an environment where there were no financial markets worthy of the name. -
A new legal scheme in banking and financial matters was enacted. Hence, a new Banking Law emerged as well as a new Organic Law of the Bank of Mexico.
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México había sido uno de los países suscriptores del convenio de Bretton Woods, mediante el cual se acordó, entre otras cosas, un sistema de tipos de cambio fijos para las monedas del mundo.
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Mexico suffers from two severe balance of payments crises attributable, to a great extent, to the postwar realignments and adjustments in the world economy typical of the postwar period. From a historical perspective, for the country and for the Bank of Mexico this can be interpreted as a verification of the benefits that the implementation of a prudent monetary policy always brings.
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In 1948, and despite the fact that said agreement did not accept floating exchange rates, Mexico released the peso exchange rate. However, in 1949 it was decided to test a new parity at the 8.65 level. This was the exchange rate that prevailed until 1954, when the country had to make a new exchange rate adjustment.
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When there is again a worrying inflow of foreign currency, the Banking Law is reformed and the central bank is granted the optional power to raise the reserve requirement of commercial banks to 100% on the growth of its liabilities.
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Don Rodrigo (Rodrigo Gómez) takes the reins of Banco de México, a man who would provide invaluable services to Mexico and who would give luster and prestige to Mexican finances. He was at the head of the Bank until his death, for 18 years, having manifested himself throughout his tenure, both in deed and in thought, as a staunch enemy of inflation.
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The real product grew at a rate much higher than that of the population, which made it possible for both PCI and real wages to grow steadily. In particular, the financial sector made formidable progress. All of this was, to a large extent, the result of the application by Banco de México of a prudent monetary policy, which helped to obtain price stability similar to that of the US during the same period. A fixed exchange rate of 12.50 per dollar was maintained.
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In order to give greater force to this regulatory instrument, it was decided to incorporate the legal reserve regime into financial companies.
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In 1974, the concept of Average Percentage Cost of Deposit for commercial banks (CPP) was created in the Banco de México (and introduced in practice).
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The Treasury Certificates (Cetes) were the basis for the development in Mexico of a market for bonds and fixed income securities. This achievement transcended not only regarding the financial evolution of Mexico, but also regarding the progress of the central bank in the country.
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The problems had their origin in the application of excessively expansionary economic policies, and in the obligation imposed on the central bank to extend ample credit to finance the fiscal deficits that had been incurred at the time.
