Mexico’s Financial Reforms. Bank Credit Without a Single Currency

Abstract

The North American Free Trade Agreement (NAFTA) is not only an agreement covering tradable commodities; it includes important chapters on services, especially financial services. In addition, NAFTA is also a foundational agreement for investment protection. The free movement of capital and the safeguarding of ownership rights are essential features. This article argues that Mexico’s financial reform in 1989–92 was a precondition for trade and financial liberalization under NAFTA. Thus, the content of this reform is analyzed and compared with the one carried out during the 1970s, which also opened up the financial market. Subsequently, the establishment of financial subsidiaries, and the global financial business model and its consequences on financing, are examined. Although it is not a monetary union, NAFTA does set up a form of financial junction. For Mexico, this junction signifies a global/national funding determination. It is argued that the regionalization of credit is fanciful, since credit regionalization pretends to set a constraint on the credit capacity of the central bank vis-à-vis the government and to transfer this capacity to the market. The idea of replacing the central bank’s role as a lender of last resort, in the context of the current financial climate of "too-big-to-fail," through legislated changes cannot rely upon the support of a globalized financial system dealing in national or regional currencies.