The circulation of coins and banknotes in Mexico has seen a significant increase in 2024. In January, the annual growth rate rose to 9%, and it continued to grow until the end of February with an annual dynamism of 14.2%, which is a level not seen since the Covid-19 pandemic. This increase coincided with the early dispersion of resources for federal social programs due to an electoral ban, causing the monetary base to exceed 3 trillion pesos by the end of February, compared to around 2 trillion 600 billion at the same time last year.
The central bank explained that this advance distribution of resources for social programs temporarily increased the circulation of cash in the economy. Higher cash requirements for payments by institutions handling transfers or direct withdrawals by beneficiaries are typically responsible for these increases, which are usually temporary and decrease significantly in the following month. However, there is also an increase in demand for money in the months leading up to federal elections in Mexico, partially attributed to advanced resource distribution for social programs due to an electoral ban. These spikes in demand are temporary and typically decrease following the election.
During the Covid-19 pandemic, there was a substantial increase in circulation bills and coins in Mexico, with an average annual growth rate of around 18% over two years after March 2020. Precautionary reasons such as households’ need for cash on hand for unexpected expenses or reducing contagion risk were attributed to this growth. However, as the pandemic waned and monetary policy rates increased, households began investing their money into more profitable options rather than saving it in cash, resulting in a slowdown in banknotes and coins’ growth rate from the second half of 2022.
In conclusion, while there have been significant fluctuations in circulation during recent years due to various factors such as economic policies and pandemics, it is important for policymakers to closely monitor these changes when making decisions that affect financial stability and economic growth.
