Editing Bank of Mexico (section)

== Background ==

Plans for a [[central bank]] of Mexico began as early as the [[First Mexican Empire|Mexican Empire]] of Emperor [[Agustín de Iturbide]] with his idea of a ''Gran Banco del Imperio Mexicano'' (Grand Bank of the Mexican Empire).<ref name=":0">{{Cite web|url=http://www.anterior.banxico.org.mx/acerca-del-banco-de-mexico/historical-outline.html|title=Historical outline, hierarchical history, Banco de México|website=anterior.banxico.org.mx|access-date=2019-05-26|archive-url=https://web.archive.org/web/20190526040724/http://www.anterior.banxico.org.mx/acerca-del-banco-de-mexico/historical-outline.html|archive-date=2019-05-26|url-status=dead}}</ref> This idea was never pursued, instead, credit was generally issued by religious orders or trading guilds.<ref name=":1">{{Cite web|url=http://www.anterior.banxico.org.mx/billetes-y-monedas/material-educativo/basico/%7B2FF1527B-0B07-AC7F-25B8-4950866E166A%7D.pdf|title=The history of coins and banknotes in Mexico|date=February 2018|publisher=Banco de México|access-date=2019-05-27|archive-url=https://web.archive.org/web/20190713175708/http://www.anterior.banxico.org.mx/billetes-y-monedas/material-educativo/basico/%7B2FF1527B-0B07-AC7F-25B8-4950866E166A%7D.pdf|archive-date=2019-07-13|url-status=dead}}</ref> In 1827, Mexico defaulted on a loan from British lenders which made it difficult to find foreign capital and it was forced to rely on local lenders as it had no national bank to lend to it. Instead the government was forced to rely on domestic lenders known as agiotistas (speculators) who specialized in short-term, high-interest loans.<ref name=":2">{{Cite book|url=https://books.google.com/books?id=YSred4NyOKoC&q=mexico+law+on+credit+institutions+1897&pg=PA42|title=Mexico: An Encyclopedia of Contemporary Culture and History|last1=Coerver|first1=Don M.|last2=Pasztor|first2=Suzanne B.|last3=Buffington|first3=Robert|date=2004|publisher=ABC-CLIO|isbn=9781576071328|language=en}}</ref>

The first formal bank organized by the government was the Banco de Avío which was formed in 1830 during the presidency of [[Anastasio Bustamante]] under the direction of the Minister of Interior and Foreign Affairs, [[Lucas Alamán]].{{sfn|Bancroft|1888|p=519}} The primary purpose of the bank was to stimulate the manufacturing and textile industries. Its success was confined mainly to the latter,{{sfn|Bancroft|1888|p=520}} but due to ongoing political and military crises the bank was eventually closed in 1842 by President [[Antonio López de Santa Anna]].<ref name=":2" />

The Mexican government had decreed the establishment of a national bank in 1837, which similarly had to close in December, 1841.{{sfn|Bancroft|1888|p=551}}

=== Private banking ===

The first major private bank <ref name=":2" /> in Mexico was opened under the period of the [[Second Mexican Empire]] in 1864 when the ''Banco de Londres, México y Sud America'' (Bank of London, Mexico and South America) opened in Mexico City.<ref name=":1" />

In the 1870s, the ''Banco de Santa Eulalia'' opened in Chihuahua and the ''Monte de Piedad'', which had functioned as a pawnshop since 1775, expanded its services into banking. Both banks issued their own bank notes and many more banks followed suit in the next decade, including the ''Banco Nacional Mexicano'' (Mexican National Bank) in 1882, opened by the administration of President [[Manuel González Flores|Manuel González]].<ref name=":2" /><ref name=":3">{{Cite book|url=http://www.anterior.banxico.org.mx/sistema-financiero/material-educativo/basico/%7B860B8FCB-0988-D96E-0260-1371980FCC40%7D.pdf|title=A Brief Summary of Banking in Mexico|last=Turrent|first=Eduardo|publisher=Banco de México}}{{Dead link|date=June 2020 |bot=InternetArchiveBot |fix-attempted=yes }}</ref>

In 1884, the ''Banco Nacional Mexicano'' soon merged with ''Banco Mercantil Mexicano'' (Mexican Mercantile Bank) to form the ''Banco Nacional de México'' (National Bank of Mexico) which issued notes and was the primary lender to the government. The same year government issued a commercial code that gave it control of the banking sector, including the responsibility of chartering banks and establishing minimum levels of capital. The new code also stipulated that all paper money had to be backed by gold or silver on deposit in the national treasury.<ref name=":2" />

The next 15 years were turbulent for the banking sector of Mexico. Due to poor management, the ''Monte de Piedad'' temporarily closed, reopening without its banking services. The government mismanaged the emission of a new non-silver coin and was forced to hastily recall it. Both of these events caused the public to lose confidence in the banks and paper money.<ref name=":2" />

=== Porfiriato ===

In 1897, during the presidency of [[Porfirio Díaz]], Finance Minister [[José Yves Limantour]] helped to guide the passing of the ''Ley de Instituciones de Crédito'' (Law of Credit Institutions). The new law grouped banks into three categories: issuing banks, [[mortgage loan]] banks, and auxiliary development banks. Issuing banks were allowed to circulate banknotes within the state they were issued, but only the ''Banco Nacional de México'' and the ''Banco de Londres y Mexico'' notes were allowed to circulate nationally. They were also authorized to make short-term loans. Mortgage banks were authorized to make loans collateralized by [[real estate]] for periods up to 40 years. The auxiliary development banks were authorized to make loans for periods up to two years for the purpose of financing industrial endeavors such as mining, manufacturing, and agriculture. Nationwide, there were 24 banks with issuing authority, two mortgage banks, and five auxiliary development banks.<ref name=":2" /><ref name=":3" />

In 1908, Limantour issued new reforms to protect the Mexican economy from weaknesses exposed by the [[Panic of 1907|US financial crisis of 1907]]. These reforms prevented emissions banks from opening new branches and required them to convert themselves into auxiliary or mortgage banks. These changes had limited success, and though Limantour predicted a budget surplus for 1911, the collapse of the [[Porfiriato|Porfirian]] regime and the intensification of the [[Mexican Revolution|Revolution]] ground normal banking activity to a halt.<ref name=":2" />

=== Revolution ===

In 1911 [[Francisco I. Madero]] took power from Díaz. Madero worked to increase the number of banks in the country<ref name=":3" /> but he was not trusted by the United States which worked with one of Madero's generals, [[Victoriano Huerta]], to overthrow him in February 1913. When Huerta took power in 1913, he confiscated all of the metal backed banknotes from private issuing banks then issued unbacked banknotes into circulation, crippling the national banking system.<ref name=":1" />

When Huerta was forced from office, the number of banknotes issued multiplied and the population began to lose faith in paper money. As warlords ravaged the country vying for control, they forced banks to make exorbitant loans or they looted them. In 1916 [[Venustiano Carranza]] declared that all banks must fully back their banknotes with metal. The 1897 law said that private banks only had to back 33% of the value of their issued notes, consequently all of the private banks were dissolved and their assets seized. That same year Carranza issued his own "unforgeable" notes in May though these lost all value by July of the same year. The banks seized by Carranza weren't returned to their owners until the administration of [[Álvaro Obregón]] in 1921.<ref name=":1" /><ref name=":3" />