Mostly Economics

Central Bank of Mexico is celebrating its 100th anniversary. It was established in Sep-1925.

Banco de México, which was created on September 1, 1925, was the pinnacle of a long-awaited aspiration by Mexicans. Its creation ended a long period of monetary instability and anarchy, dating back to the beginning of the XIX century, and during which a system of diverse issuing banks operated. Such system greatly deteriorated with the upsurge of the Mexican Revolution in 1910, which brought up distrust on banknotes and the downfall of the monetary system prevailing at that time.

Few will remember that the origins of the Mexican central bank date back to at least the beginning of the XIX century. As long ago as 1822, during the reign of Agustín de Iturbide, a project to create an institution that would be known as “Gran Banco del Imperio Mexicano” (the Great Bank of the Mexican Empire) with the power to issue banknotes was put forward.

At that time, in Europe, central banks began growing out of a natural progression in which retail banks gradually assumed functions that nowadays correspond solely to central banks. A similar process would have gone underway in Mexico around 1844, but, in the end, the idea embracing free competition between retail banks in the area of banknote issuance won acceptance and materialized.

With the demise of the Porfirian banking system during the Revolution, the issue was no longer whether there should be a monopoly or free competition in currency issuance, but rather the features of the Single Bank of Issue provided for in article 28 of the Constitution passed in 1917. The dilemma was whether to create a private bank or a government-controlled bank. Meeting in Querétaro, the founding members opted for the latter, although the Constitution states that only a “government-controlled bank” will be exclusively responsible for currency issuance.

Despite its creation being a constitutional aspiration, seven years passed by before the Single Bank of Issue finally came into being. During that time, several attempts to get the project started failed due to Treasury hardship. On repeated occasions, a shortage of public funds was the obstacle to the bank’s creation. Meanwhile, at the time, the thesis regarding the need for all countries to have a central bank was consolidating globally and was enclosed in a 1920 communiqué by the then influential League of Nations during the Brussels International Financial Conference.

David Marsh of OMFIF in this article discusses central bank manual for fighting crises:

Patrick Honohan, governor of the Central Bank of Ireland from 2009 to 2015 – the seminal period of euro area sovereign debt upsets – is a central banker who almost literally grew up with economic and financial crises.

Honohan understands, all too well, the psychology of politics and markets. As a European Central Bank governing council veteran, and a long-standing professor of economics at Trinity College Dublin, he can unravel the intricacies with wit, subtlety and linguistic flair. His deftly written manual The Central Bank as Crisis Manager is required reading not just for officials whose nightly rest may be disturbed by incipient financial breakdown, but also for all those caught up in the aftermath.

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Honohan’s principles for reaction may be of only limited practical significance for helping Powell and Cook face current challenges. Yet they merit thoughtful reflection. One of his most important points is that, once in crisis-fighting mode, central banks must adopt a set of policies and approaches outside their normal remit. In a professionally benevolent way, central bankers need to develop split personalities.

‘Normally thought of as staid, slow-moving, taciturn and organisationally aloof central banks have to behave quite differently when faced with an unfolding crisis. They must accelerate decision-making, change the style of communication, and prepare to work with other arms of the state.’

Achieving success in such cases, as Honohan recognises, is a matter of fine balance. To overcome the odds, central banks need to draw on reserves of skills and experience – and will unquestionably require a portion of luck. But a ‘quantum change’ in behaviour is crucial in ‘preventing a financial crisis from metastasising into a confidence-driven economic recession’. As Honohan notes, using a central bank’s balance sheet to provide liquidity and closely co-operate with the government, has clear implications for central bank’s vaunted (and somewhat well worn) independenc

The M is missing by purpose in Monetary. In this NBER paper, Ricardo Lagos on relevance of money:

The 2025 edition of Jackson Hole Conference concluded recently.  The theme was Labor Markets in Transition — Demographics, Productivity and Macroeconomic Policy.  The 2004 conference was also based on demographics.

It was interesting to see the conference inviting Ruth Porat, President and Chief Investment Officer of Google,  

Porat spoke about AI and how it transforoming the world of healthcare and finance. 

Kamil Pliszka and Carina Schlam in this Bundesbank paper:

This paper examines whether global systemically important banks (G-SIBs) engage in window-dressing behavior to circumvent or reduce regulatory requirements, increasing vulnerability to economic shocks. Using a comprehensive global bank sample, we uncover evidence of such practices: G-SIBs reduce year-end exposures used for G-SIB capital buffer calculations, by roughly twice the magnitude of non-G-SIBs, and reverse these cuts early the next year. This pattern is strongest among G-SIBs that are near bucket thresholds or subject to high G-SIB capital surcharges.

A team of ECB economists (Luisa Fascione, Beatrice Scheubel, Livio Stracca, Nadya Wildmann and Juan Ignacio Jacoubian) in this paper study the depositor response to digital banking:

The March 2023 banking turmoil has intensified discussions whether social media and the digitalisation of finance have become significant factors in driving severe deposit outflows. We introduce the concept of deposits-at-risk and utilize quantile regressions for disentangling determinants of stressed outflows at the lowest tail of the distribution. For a sample of large banks directly supervised by the ECB, our findings indicate that an increased use of online banking services leads to a small amplification of extreme deposit outflows, but this effect is not further exacerbated by the availability of a mobile banking app. Online banking use and availability of a mobile app do not have a causal effect on deposit volatility in normal times. Finally, social media are impactful only in idiosyncratic cases.