* Banco de Mexico

* Conclusion

* References and Other Sources

Introduction

Institution is usually defined as any organization or social group that, with certain media, aims at the completion of a purpose or purposes, but in a broader sense and focused sociologically speaking, institutions are formal rules (such as the constitution of a country, ordinary laws and specific regulations) and informal (such as ethical and moral values, religious precepts and other implicit codes of conduct) and their enforcement mechanisms that affect (which shape) the behavior of individuals and organizations in a society.

Institutional arrangements may be economic, political or religious, among others. Exist in all cultures and are as diverse as these, constitute a structure of incentives that guide behavior in social welfare function. Success, in the long run, cultures seems to be determined by the functionality, robustness and credibility of its institutions.

Term Economic Institution.

For the period of economic institution, it is important to know first what’s Economy and its importance as a human being and society, at least in its most general sense.

Etymologically the word economy means Oikos Nemein (fix the house) reports the existence of a man living space where I could find resources for further use. The economy bears a deep relation with politics, because it guides the development and legitimization of power and its products, with the government support scheme and its possibilities and limitations to impact the development of society. Describe the historical presence of human civilizations economy could be represented at the following times:

* Use and immediate use of natural resources.

* Participation in the production cycles of natural resources.

3. Transforming resources into products mediate use.

4. Using technology in the modification of the production cycles of the resources and discovery of alternative ways to use them.

According to Bernard Phillips (1988) the economic institution is the social structure that focuses on the production, distribution and use of wealth. However, within the economic literature uses the term “institution” as something more generic: the way humans relate to a particular society or group, in the best interest for the group. Are the uses, habits, customs or rules that govern social and economic relations between members of the group. The benefit of the institution is greater the more efficiency in the economy generate more minimize transaction costs and information.

That will be possible to hold the more experienced players participating in that institution, the rules are simpler and smaller the number of individuals who have to execute.

Some Aspects of Economic Institutions are:

* Ownership

* Contracts

* Credit

* The “desire” for profit

The Market.

The market system is an economic institution which in turn requires a larger institutional framework to develop (such as national legislation and other economic institutions such as credit and property). Markets are also held on a set of institutions that allow impersonal transactions without the need of continuing contractual relationships (with money, for example). These institutional arrangements can range from the definition of where and when to switch up the complex laws relating to credit or arbitration proceedings, among others.

As mentioned above, economic institutions are in a very close relationship with the policy and the development of a country. But taking this approach now toward what is Mexico, it is important to take into account the system of economic organization, capitalism, and that is a point essential to the existence of any financial institution in Mexico. So then be played in a more clear and specific economic institution to address in this research.

Capitalism

General features of capitalism:

1 .- There is private ownership of the means of production.

2 .- There are two basic classes: the bourgeoisie (owners of means of production) and proletariat (sell their labor to bourgeoisie to subsist).

3 .- The capital comes from the relationship between the two classes.

4 .- The social relations of production are based on exploitation of private property in the means of production.

5, – the form of exploitation is the surplus value extracted from the work of the workers and which is appropriated by the capitalist owning the means of production.

6 .- There is a generalized commodity production, trade development, market and monetary economy.

7 .- The end of capitalism is the pursuit of profit and not the satisfaction of social needs.

8 .- There is anarchy of production (each capitalist decides, how much and where to produce and invest).

9 .- The capitalist economy oscillates in cycles.

10 .- Inflation and unemployment are related to the functioning of capitalism.

11 .- The development of the countryside and the city is uneven.

12 .- Has the social character of production and private appropriation of profits.

And goods production

Generalized commodity production is a necessary condition for the development of capitalism. The production of goods has had three basic historical forms:

1 .- The simple commodity production.

2 .- manufacturing.

3 .- machine production.

Historical phases of capitalism

The capitalist system has gone through two historical phases:

1 .- pre-monopoly or competition which runs from the sixteenth to the last third of the nineteenth century.

2 .- Imperialist or monopoly, which covers the last third of the nineteenth century to today.

Mexican Capitalism

The historical process of Mexican capitalism, which became the dominant mode of production from the Porfirio Diaz, in the last quarter of the nineteenth century, has been determined by two simultaneous processes, the development of international capitalism in the United States became the hegemonic power in the first half of the twentieth century, and national dynamics of the country’s socio-economic formation.

Different perspectives of Latin American social theory, between the sixties and seventies, contributed to the Marxist theoretical understanding of the process that allowed Latin American capitalism as a structural part of the global capitalist system, characterized by dependency and underdevelopment.

Underdevelopment was not raised to be equivalent to stagnation, but as uneven development that reproduced social and structural inequality, backwardness and dependence, since historically responded to the fundamental dynamic processes of capital accumulation in the metropolitan countries with which the national capital or subordinated associated dynamic.

Could be highlighted three aspects of the Latin American theory of development: dependency and underdevelopment determined by the accumulation process structurally subordinated to the accumulation of metropolitan capitalism, the Latin American underdevelopment determined primarily by unequal exchange between the metropolis and the periphery; and the course’s own internal dynamics of national capitalism.

Since the Mexican capitalism, by the mere fact of being capitalism depends obviously important economic institutions in Mexico and the world to achieve development and stability of the country, therefore, the Bank of Mexico, the most important economic institution of our country, and as an autonomous central bank, aims to achieve price stability is a prerequisite for achieving sustained economic growth and foster development.

Banco de Mexico

Background

The Banco de Mexico opened its doors on September 1, 1925. The history of this institution goes back at least to the early nineteenth century. In 1822, during the reign of Agustin de Iturbide, history records the presentation of a project to create an institution with authority to issue tickets to be named “Great Bank of the Mexican Empire.”

In Europe, central banks arose from a spontaneous evolution as a commercial bank gradually acquired the features in a modern context are held exclusively by the central institutes. Something similar was about to happen in Mexico around 1884, but in a famous legal trial held in the capital won the position favoring free competition of commercial banks in terms of ticketing.

With the destruction of the banking system during the Revolution Diaz, the debate no longer focuses on the desirability of free competition or monopoly in issuing currency, but the features that should have a single Bank of Issue, whose establishment was enshrined in Article 28 of the Constitution promulgated in 1917. The dilemma was to propose the establishment of a private bank or a bank under government control. Constituents meeting in Queretaro chose this second formula, although the Constitution only established that the currency issue would be responsible exclusively to a bank that would be “under the control of government.”

However, despite the idea that was enshrined in the Constitution, seven years it took the founding of the then called Unico Bank of Issue. Because, among other causes, such as lack of organization, the scarcity of public funds was the insurmountable obstacle to integrate the capital of the institution. Meanwhile, consolidated in the world’s thesis on the need for all countries to have a central bank. Such was the message of a statement issued in 1920 by the then influential League of Nations during the International Financial Conference in Brussels.

Foundation

The establishment of the Bank of Mexico is not realized until 1925, thanks to budgetary and organizational efforts of the Secretary of the Treasury, Alberto J. Pani, and the support received from the President Plutarco Elias Calles.

The Bank of Mexico was inaugurated on September 1, 1925. The newly created Institute was given, exclusively, the power to create money, both through the minting of metal parts and through ticketing. As a result corresponding to the above, was charged with regulating the money supply, interest rates and the change on the outside. Also, the new body became an agent, financial advisor and banker to the Federal Government, but were freed for commercial banks to join or not to the Bank of Mexico.

Off

The Central Bank was born in a time of great challenges and aspirations for the country’s economy. Due to the need for such an institution like this, he accompanied another imperative: to foster the emergence of a new banking system to revive lending in the country and reconcile the population with the use of paper money, which is not an easy task. Therefore, the Bank of Mexico, and the attributes of a bank of issue, also was granted authority to operate as an ordinary institution credit and discount.

During his first six years, the Bank had reasonable success in promoting the revival of credit in the country. However, the difficulties faced in its aim of becoming a central bank were formidable. Although his reputation grew and made progress, the circulation of its notes was weak and few accepted commercial banks associated with it by buying shares.

The recession of 29 and subsequent

The first major reform in the life of the Banco de Mexico takes place around 1931 and 1932. In July 1931 he promulgated a controversial law which monetary demonetized gold in the country. For the Bank of Mexico, the Act conferred certain characteristics of their ticket money, even when it was kept self-acceptance of them.

However, only eight months after they occur most significant other reforms: the Monetary and that law enacting a new Law for the Bank of Mexico. With this latest reform to the Bank withdrew the authority to operate as a commercial bank, was made compulsory association of banks with the Central and loosened the rules for issuing tickets.

The chronicles say that at this time so great was the scarcity of money, which launched a national movement in favor of accepting the ticket of the Banco de Mexico, a fact which substantially increased the demand for means of payment. Some even began to prefer the pieces minted ticket. This led to a boom in discount movement.

Having gained the acceptance of the bill, opening the way for the Bank to fulfill the functions outlined in the new Act. These were: to regulate the money supply, interest rate changes on the outside, take care of servicing the Federal Government Treasury, centralization of bank reserves and banks become bank and lender of last resort.

Platista Crisis

In 1935, facing an unprecedented crisis when the price of silver rises steadily. You get to run serious risk that the intrinsic value of gold coins – which made up the bulk of the coins or support – exceeds their face value. The danger looms particularly on the parts of a weight, enjoyed deep-rooted among the population. The crisis plot by two measures: cast parts with lower silver content, and circulate notes of that denomination for many years were known as “shrimp.”

In 1936 he promulgated a new Law and Orthodox, which responds to the motivation to rid the Bank of Mexico operation of any “inflationary note.” This, by adopting strict rules for issuing means of payment. Particular emphasis was placed on the system in limiting the credit that the Central Bank could give the government. In practice, this law is very rigid and, strictly speaking, is never put into effect. Thus, in 1938, reformed its provisions more restrictive. Thus, both in terms of credit lines that the Bank could provide the Government, as compared to the paper that it could acquire its operations with commercial banks.

A few months earlier, as a result of deterioration had suffered balance of payments of Mexico since 1936 and capital flight caused by the oil expropriation, the Bank of Mexico had withdrawn from the market and the exchange rate had increased from 3.60 pesos the dollar at levels above 5 pesos per dollar.

Under the influence of war

In late 1939, the Mexican economic environment changes drastically with the onset of World War II. Mexico is flooded with speculative capital or “footloose” bank seeking refuge in our country. It is in this context that in June 1941 establishing a new legal framework for banking and financial matters. There emerged a new Banking Law and a new Organic Law of Banco de Mexico.

The war period that lasted roughly from 1940 to 1945 was of great significance in the evolution of the Bank of Mexico. Not since its inception, the Bank was faced with the challenge of having to implement a policy of monetary restraint. In the words of the then Director General, Eduardo Villasenor, until that time the Bank facility was similar to the clockwork in the sense that it could only be operated “forward.” It was so began an odyssey to develop appropriate regulatory mechanisms for a central bank operating in an environment where financial markets were not worthy of the name.

As mentioned, during the wartime capital inflows swelled the Bank’s monetary reserves, leading to a rapid expansion of the means of payment, an ominous expansion pregnant inflationary potential. To avert that possibility, the authorities embarked on a process of approaches which were gradually defining the most suitable tools to perform the required monetary restraint. First attempt was made in open market operations, and also sought to influence the composition of the portfolios of banks to prevent speculative transactions and credits. Also experimented with the manipulation of the discount rate and the “moral persuasion”, although the instrument yielded better results was the rise of the “lace”, ie, the mandatory deposits that banks had to pay to the Bank Central. This action was carried to an extreme never before experienced in any country, because the reserve ratio rose to 50% of the deposits to the banks of the Federal District, and up to 45% for provincial banks.

Support for development in the postwar

As the record proved to be effective to raise the statutory reserve, once the war and for many years, was used in Mexico to handling the reserve requirement, not only for monetary regulation purposes, but also for other two objectives : as a method of financing government deficits and by the end of “selective credit control.” In 1949, again a concern of foreign exchange, is amended by the Banking Act and Central Institute gives the discretionary power to raise the reserve requirement of commercial banks up to 100% on the growth of its liabilities. However, this obligation is graduated according to how institutions integrate their loan portfolios, in other words, according to how they channeled their funding to the various sectors of the economy.

In 1948 and 1949, Mexico suffered two severe balance of payments crisis attributable, in great measure to the realignments and adjustments in the global economy typical of the war. From a historical perspective for the country and the Bank of Mexico it can be interpreted as a check on the benefits that always reports the implementation of prudent monetary policy.

In June 1944, Mexico had been one of the signatory countries of the Bretton Woods agreement, whereby it was agreed, inter alia, a system of fixed exchange rates for currencies in the world.

In 1948, even though that agreement did not accept the fluctuating exchange rates, Mexico decided to leave the exchange rate float the peso. However, in 1949 he decided to try a new exchange rate level of 8.65. This was the exchange rate that prevailed until 1954, when the country had to make a new exchange rate adjustment.

The stable development and its practitioners

In 1952, took over the Bank of Mexico, a man who would provide invaluable services to Mexico and was to give luster and prestige to the Mexican Finance: Rodrigo Gomez. Don Rodrigo – as it was known in life – he led the Bank until his death, for 18 long years, having been expressed over its management, both in fact and in thought, as a sworn enemy of inflation .

In one famous occasion said that “if the choice was between progress quickly or have a stable currency, there would be no doubt about the election.” But the point is that inflation not only has negative effects on income distribution, but just to curb investment and economic growth.

Along with Antonio Ortiz Mena, who accompanied him during two presidential administrations in charge of the Ministry of Finance, Don Rodrigo Gomez was one of the architects of an enviable period of progress and stability that lasted from 1954 to 1970, and is known as “stabilizing development.” The era began after the aforementioned exchange rate adjustment in 1954, which can be regarded as the culmination of a growth stage with instability that lasted more than three decades.

In the period 1954-1970, real output grew at a much faster rate than population, which made it possible to also grow steadily as income per capita and real wages. In particular, the financial sector experienced a tremendous progress. This was largely a result of the application by the Bank of Mexico, a prudent monetary policy, which helped to achieve price stability similar to the U.S. in the same period. Hence could also maintained a fixed exchange rate (12.50 per dollar) in an unrestricted free foreign exchange regime, the monetary reserve and show a growing trend throughout the period.

At the same time, during the “stabilizing development” the Bank of Mexico contributed to the progress of national economy, providing support to other advocacy strategies through judicious management of the reserve requirement policy. This not only helped to provide non-inflationary credit to priority activities, but also to compensate for fluctuations in the global economy during those years that affected the balance of payments. In 1958, in order to give greater strength to the regulatory instrument, it was decided to finance companies to legal reserve system.

Contributions from the Bank of Mexico development

During the seventies and eighties of the lies a time of difficulty for the Bank of Mexico. Until 1982, the problems stemmed from the application of excessively expansionary economic policies, and the obligation to be imposed on the Bank to extend credit to finance large fiscal deficient then incurred. This resulted in the deterioration of the stability of prices and led to the occurrence of two severe balance of payments crisis in 1976 and 1982. From 1983 onwards, the meaning of the actions has been of a different sign.

From this year, efforts have been aimed, in essence, to control inflation, to correct imbalances in the economy and seek the recovery of confidence of economic agents.

Yet in some cases to address existing problems in recent decades have witnessed major institutional changes and momentous contributions of the Central Bank to the country’s economy. One of the most outstanding initiatives made by the Bank of Mexico was about the establishment in Mexico of the “commercial banks in 1976. Then, once consummated the conversion of multi-specialist bank, promoted a program of mergers of smaller institutions, aimed at strengthening its strength and ensure greater competitiveness in the financial system.

In 1974, the Bank of Mexico, and introduced into practice the concept of percentage average funding cost for commercial banks (CPP). This average rate, to act as the reference rate for bank loans, avoided many difficulties for the banks when, later that decade, interest rates began to increase the effect of inflation. Among other memorable contributions of the Central Bank, we recall the idea of regulating the capitalization of banks not only in terms of recruitment, but of certain assets and other items at risk. Also worthy of mention the design and establishment of a protection system for public deposits in banks.

Also the subject of pride for the Central Bank was the creation in 1978, the Treasury Certificates (Cetes). These securities, prior to the enactment in 1975 of a new Act regulating the securities market, were the basis for development in Mexico’s bond market and fixed income securities. Of importance is to emphasize the importance of this achievement not only in terms of financial development in Mexico, but also on the progress of central banking in this country. The creation and maturity of the bond market led to a strengthening in our conditions to carry out in practice, monetary regulation through open market operations.

In search of stability

Already during the administration headed by President Miguel de la Madrid (1983-1988), one of the most important actions was the creation of FICORCA (Trust for Exchange Rate Risk). This instrument not only allowed, at the time, Mexican companies with foreign currency denominated liabilities could renegotiate their foreign debts but at the same time be protected against the potential danger of future exchange rate adjustments.

In 1985 recorded a significant milestone in the history of the Bank of Mexico in that year he issued a new Organic Law for the institution. This system was distinguished because it incorporates the power to set appropriate limits to the financing that would give the institution. Other notable features of the Act were that gave the Bank the power to issue its own debt securities for purposes of currency regulation and currency reserves freed of restrictions so that it could be used without restrictions for the purposes that are own.

From 1987 to the date of writing this text, the Bank of Mexico, acting in concert with other authorities, has made its best effort in enforcement of the abatement of inflation. The task has not been easy. The difficulties arising from an external environment that has often been unfavorable and remove themselves from the root causes of inflation, government deficits financed by the Bank’s primary credit-Mexico have joined those of overcoming what is known technically as ” inflation inertia. ”

In the latter effort was born of social partnership that has been so successful in Mexico, which has resulted in the different stages of the “Covenant.” As is known, the coordination of the principle that different groups in society and government, employers, workers, reach operational agreements, to impose discipline on the evolution of both prices and wages and the type of change.

Autonomy

The great transformation in the recent history of the Bank of Mexico occurred in 1993 with the constitutional reform which granted autonomy to this institution. The autonomy granted to the Bank of Mexico, explained in the Explanatory Memorandum to the respective constitutional reform “is principally devoted to building a safeguard against future outbreaks of inflation. Hence the importance of the constitutional text has been clarified the guiding principle which must be secured at all times the performance of the Bank of Mexico: the administration of the stability of the purchasing power of the national currency.

Central Bank autonomy rests on three pillars: independence to determine the volume of primary credit may be granted independence has been granted to the persons constituting the Board of Governors and administrative independence of the institution.

These three legs are essential to ensure the autonomy of the Central Institute, but the first of them deserves special comment. In Article 28 of the Constitution has been noted that “no authority to order the Bank may grant financing.” The relevance of this measure stems from the very special relationship between the Central Bank credit and the movements of general price level. This, because the Central Bank is the only entity that can increase the purchasing power in the economy, although no one make more. Hence there is always a very close causal relationship between the Central Bank credit and the movement of general price level.

Bulwark against inflation

Central Bank autonomy can be seen as a barrier against the occurrence of future inflation. The importance of having this dam comes from the many evils which cause inflation, especially as it touches on the distribution of income and economic growth potential. In times of inflation, prices rise faster than wages, while this phenomenon is most acute for those who tend to conserve their resources in notes and coins. And in general, individuals in the latter situation are those who belong to the poorest strata of society.

In terms of growth, inflation tends to damage the incentives to production and investment, uncertainty and confusion it creates. During inflation, the volatility of relative prices reduce market efficiency as a mechanism for allocating resources and distorts economic calculation, inhibiting investment. Also, the rapid growth and disorderly favorable prices of high interest rates for savers prize demand for financial investments.

Central Bank autonomy is a good barrier against inflation to the extent that is intended to mitigate its symptoms but to prevent its causes. This, because it is aimed at preventing abuse of the credit of the central bank’s main source of evil referred to.

Conclusion

In essence, institutions are not its members, buildings and other facilities and even their constitutions, but above all, their functions and achieve its goals, and the impact and presence exercised in society. Now, speaking only of economic institutions, the importance of these incentives is the provision that directs the behavior of a society based on economic welfare, and social consequences. And seen from a capitalist point of view, based on Mexican capitalism, as a result of falls in mind that Mexican capitalism itself was born as a means of production dominates the dynamics porfiriato by national socio-economic formation of the country, which is largely a result of changes in economic institutions of the time.

However, as a result of capitalism were born at the same time new economic institutions, which demonstrates the close relationship and interdependence between economic institutions and Mexican capitalism from the contemporary period of our country until today. And then skipping this important point, we can fall into that Banco de Mexico, an economic institution of our country is and has been real important in what is Mexican capitalism.

Consequently, the Bank of Mexico as the most important economic institution in the country, has been an indispensable part in all socio-economic areas of Mexico, from its inception. He has been involved both times of prosperity and stability, as well as secession and failure, but mostly it is an economic institution that has fulfilled its primary responsibility, which is the enforcement of the national currency.

In other words, our country is currently governed under the economic system called capitalism, which as mentioned is based on mass production and profit-owners of the means of production. Although our economic system is closely related to unemployment and inflation, there are institutions that try to maintain stability in the infrastructure of our country: the economic institutions. For example, the Banco de Mexico, which over time has developed the task of improving the credit system in our country, the acceptance of paper money between individuals, maintaining a fixed structure, and economic stabilization of the country trying to avoid inflation. All this has been achieved through the development of autonomous central bank in our country has achieved sustained economic growth and foster development.

This example concludes that the economic support the infrastructure of a country, enabling the stable development of nations.

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* Borja Martinez, Francisco El Banco de Mexico Fondo de Cultura Economica, Mexico 1997, 152 pp.

* Fabozzi, Frank Pentiece Markets and Financial Institutions May, Mexico 1996

* Gallino, Luciano Dictionary of Sociology Siglo XXI, Mexico 2001, 1024pp.

* Ocean Group, Our Country, Encyclopedia of Ocean Mexico, Mexico 2004, 1152 pp.

* Manjares Solis, Leopoldo II The Mexican economy, developing economy and Fondo de Cultura Economica, Mexico 1973, 605 pp.

* Williamson, Oliver The Economic Institutions of Capitalism Fondo de Cultura Economica, Mexico 1989, 436 pp.

* Mendez, Silvestre Foundations of Economics Mc Graw, Mexico, 317 pp.

* Gomez Jara, Francisco Sociology Porrua, Mexico, 481 pp.

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Luis Fernando Carrillo Mesta