MexECON Blog

New Limits on Cash Dollar Transactions

According to press reports, the Mexican government has imposed a series of new restrictions on cash dollar transactions in order to reduce money laundering by drug cartels.  Under the new rules, a bank may not accept more than $4,000 per month in U.S.-currency deposits, loan payments, or payments for other services from one of its own individual customers.  A bank may not accept more than $300 per day or $1,500 per month from an individual who is not one of its customers.  Foreigners who are not customers of a Mexican bank will not be able to exchange more than $1,500 in U.S. currency each month.  Businesses will be allowed to exchange cash dollars for pesos only if they are operating in tourist areas or along the U.S. border, in which case they will be allowed to exchange up to $7,000 per month.

Comment:  The new restrictions only apply to transactions in cash.  Most cross-border business transactions, such as those between Terra Nova and its portfolio companies in Mexico, are done via wire transfer, so they will not be affected.  Nevertheless, the new rules probably will present some difficulties for smaller Mexican businesses, especially those operating in the informal economy.  Analyses in a variety of press articles suggest that the moves may have only a limited impact on the drug cartels' ability to convert their ill-gotten dollar earnings into pesos.  Although the new rules may slightly reduce the demand for pesos and thereby take some upward pressure off the currency, there is no apparent evidence that the restrictions are aimed at managing the exchange rate.

Patrick Fearon, CFA
Vice President, Fund Management

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