Introduction
Four former governors of the Banco de México (Mexico’s central bank) highlighted significant challenges facing central banks, emphasizing the importance of maintaining price stability.
Seminar on Banco de México’s Centennial
During a seminar organized by ITAM and Centro Cultural Gómez Morín to commemorate the Banco de México’s centennial, ex-governor Alejandro Díaz de León stated that the primary purpose of any central bank is to provide a reliable currency, whether digital or physical.
Ex-Governor Alejandro Díaz de León
Díaz de León expressed his dream as an economist to work in the research area of Banco de México, mentioning his collaboration with key figures like Agustín Carstens, Alonso García Tamayo, and Moisés Schwartz.
Ex-Governor Guillermo Ortíz Martínez
Ortíz Martínez discussed the transition from short-term interest rates to a target inflation system. He explained how members of his governing board, including José Sidaoui, Jesús Marcos Yacamán, and Manuel Sánchez, contributed to this process during crises in emerging markets from 1998 to 1999, including those in Brazil, Mexico, Argentina, and Russia.
Ex-Governor Agustín Carstens
Carstens, who managed the economy during the pandemic, acknowledged the members of the governing board who supported him through a severe supply shock. He mentioned that the exchange rate depreciated by 35%, and he relied on estimations to navigate the situation due to the lack of reference points.
Challenges Facing Central Banks
The ex-governors identified two major challenges:
- Maintaining focus on price stability: Central banks must prioritize keeping inflation in check to avoid monetary disorder.
- Privately created currencies: The emergence of privately issued currencies, or “utility money,” poses a significant challenge to central banks.
Carstens referenced Mexico’s history of multiple currencies issued by different governments before the Revolution, which led to monetary chaos. He emphasized that central banks are essential in preventing such disorder.
Technological Advancements and Interbank Transfers
Former governor Miguel Mancera highlighted the benefits of technological advancements in interbank transfers for central banks. He noted that without these developments, the country would be flooded with physical cash.
The Evolution of Banco de México
The seminar began with a discussion on Banco de México’s history, featuring historians Eduardo Turrent, Gustavo del Ángel, Javier García Diego, and Aurora Gómez Galvarriato.
Eduardo Turrent explained that Banco de México was initially known as the “bank of banks,” intervening to stabilize financial institutions during the post-war period (1939-1941).
Aurora Gómez Galvarriato praised Banco de México as a robust institution that has “survived the political calendar’s swings.”
Key Questions and Answers
- What are the main challenges for central banks? Maintaining focus on price stability and addressing privately created currencies.
- Why is trust crucial for central banks? Central banks provide reliable currencies, preventing monetary disorder.
- What role do technological advancements play in central banking? Technological progress, such as interbank transfer systems, enhances central bank operations.
- What is the significance of Banco de México’s history? Understanding its evolution helps contextualize current challenges and central bank functions.
