Over the course of its one hundred years of history, the Bank of Mexico has been led by outstanding figures who, in addition to confronting the specific circumstances and challenges of each period, left their own distinctive imprint on the institution. At the end of 1940, amid a complex domestic and international scenario, Eduardo Villaseñor Ángeles was appointed General Director of the central bank, replacing Luis Montes de Oca, who had headed the institution since 1935. This change, which took place in a tense atmosphere resulting from the presidential election of 1940, marked the beginning of a stage during which the Bank of Mexico underwent a series of transformations that ultimately consolidated it as the leading institution of monetary policy. These changes not only enabled the Bank to confront the multiple challenges generated by the Second World War, but also granted it a preeminent position within the government’s development strategy and laid the foundations of the policy framework that would define the institution in the decades that followed.

Eduardo Villaseñor was a multifaceted figure who, prior to his appointment at the Bank of Mexico, had already developed a distinguished career as a public official and as a promoter of economic study and research in Mexico. He was also a founder of important editorial and cultural projects that were fundamental to twentieth-century Mexico. Throughout this trajectory, Villaseñor was a prolific author of numerous works that reflect the thinking of a lucid mind concerned with creating the appropriate conditions to foster development and improve the welfare of the most disadvantaged sectors of society (in line with the revolutionary ideal), at a time when the “best” criteria of economic policy were the subject of intense intellectual debate. Perhaps the most significant moment in this path was precisely his tenure at the head of the central bank. During this period, in addition to his performance as director, Villaseñor developed a set of reflections and writings that help to illuminate not only the actions of the Bank during one of the most turbulent periods of the twentieth century, but also his conception of the role of central banking in a country such as Mexico.

The aim of this paper is to analyze Villaseñor’s reflections as director of the central bank, his assessments of the role of the Bank in a context strongly shaped by the international situation created by the armed conflict, and his views on the challenges faced by the Bank of Mexico during the Second World War. To this end, the paper is organized into three sections. The first provides background information and brief biographical notes on Villaseñor, with particular emphasis on his public career. The second presents an analysis of his administration as director of the young Bank of Mexico, as well as the debates surrounding the appropriateness of the economic policies adopted by the central bank and the Ministry of Finance. The final section offers some concluding reflections.

Eduardo Villaseñor was born on September 13, 1896, in Angamacutiro, Michoacán, into a large and traditional family. After completing his early studies in his hometown, his father secured him a scholarship in 1910 to attend preparatory school at the Colegio de San Nicolás de Hidalgo in the city of Morelia, the state capital—an experience that endowed him from an early age with a deep sense of responsibility. While he was still a student at the Colegio de San Nicolás, the family business went bankrupt. Villaseñor recounts the event as follows:

The lesson inherited from his father was by no means insignificant. The issue of credit would go on to shape his ascending political career. As is evident throughout his writings, Villaseñor’s central concern was the creation of institutional mechanisms capable of financing productive activities—both in the agricultural and industrial sectors—through targeted lending, with the aim of improving the living conditions of the population.

When the revolutionary movement broke out, despite his youth as a student at the Colegio de San Nicolás de Hidalgo, Villaseñor expressed sympathy for the revolutionaries. The death of his father subsequently forced him to engage in various forms of employment to help support his family. In 1916, he obtained a scholarship to study engineering in Mexico City, which he had to supplement with additional income in order to subsist, given the rapid depreciation of money at the time. He worked at the newly created Dirección General de Bienes Intervenidos, under the leadership of the fellow Michoacán native and future president Pascual Ortiz Rubio. Due to a lack of time and financial resources, he abandoned his studies and requested a transfer to the offices in La Paz, Baja California, where salaries were paid in metallic currency. However, for reasons unknown to him, his salary was suspended, forcing him to return to the capital in an unsuccessful attempt to recover the unpaid wages.

Back in Mexico City, he secured a position in the archives of the Departamento de Caza y Pesca of the Secretaría de Fomento, where he was granted permission to study at the School of Jurisprudence of the National University. There he studied under Antonio Caso and met classmates such as Samuel Ramos and Daniel Cosío Villegas. After the Agua Prieta rebellion and with the appointment of José Vasconcelos—first as Rector of the National University and later as Secretary of Public Education—Villaseñor became one of the most outstanding students of the leading intellectuals of the Ateneo. In addition to Caso, of whom he was already an enthusiastic follower, his main influence was the Dominican scholar Pedro Henríquez Ureña, who guided him along the path of professional rigor required for the study of the humanities. During these years, he was also a close collaborator of Vasconcelos in his cultural crusade and began a deep friendship with Alfonso Reyes through an important epistolary exchange that would be sustained for many years.

Under the guidance of Henríquez Ureña, Villaseñor published his first literary texts in the journal México Moderno. At the end of 1922, he founded the magazine Vida Mexicana together with Cosío Villegas. He also contributed writings to the Argentine journals Martín Fierro and Valoraciones, as well as to Mexican publications such as La Antorcha, Sagitario, Horizonte, Ulises, among others. Gradually, his literary production gave way to social, political, and economic themes, although he never abandoned literary writing entirely. Like Cosío Villegas and Jesús Silva Herzog, he taught at the National School of Agriculture in Chapingo, as well as at the National Preparatory School.

Subsequently, upon the recommendation of Manuel Gómez Morín, director of the School of Jurisprudence, he was appointed librarian at that institution, a position he later left when he became deputy director of the Department of University Exchange at the National University. After the outbreak of the De la Huerta rebellion at the end of 1923, he held the post of city councilor (regidor) of the Mexico City Council together with Cosío Villegas. However, after barely three months in office, and having observed serious mismanagement in administrative and fiscal matters, he ultimately resigned.

Villaseñor obtained his first position of real responsibility in 1926, when he was appointed Head of the Department of Societies at the newly founded National Bank of Agricultural Credit (Banco Nacional de Crédito Agrícola, BNCA) (Márquez 2015). There, he was entrusted with the task of providing financing to peasants organized in cooperatives (agricultural credit societies) for the communal exploitation of ejidal lands. However, his work at the BNCA—whose director was Elías de Lima, whom Villaseñor regarded as an “old-fashioned banker, for whom it was almost inconceivable to think of extending credit to a society of peasants” (Villaseñor 1974, 46)—led to a bitter confrontation. Unlike his father, who had preferred to relinquish his entire patrimony in order to settle his debts and avoid harming the peasants, the newly created bank, which in theory institutionalized revolutionary ideals, operated according to opposing principles. It allocated most of its resources to large landowners and to “favor-based” loans for individuals close to the regime. As a result, in 1928 Villaseñor submitted his resignation, in which he denounced the deviation from the spirit of the law and demanded a rectification of the Bank’s credit policy.

Alongside his literary activities and his work as a public official, Villaseñor developed a strong interest in promoting the study and research of economics in Mexico. In 1927, he encouraged the organization of the Mexican Society of Economic Studies, which, despite its short lifespan, represented a pioneering effort in this field. The following year, within the newly inaugurated Library of the Ministry of Finance, the Mexican Institute of Economic Research (Instituto Mexicano de Investigaciones Económicas, IMIE) was established.1 This institution, promoted under the leadership of Jesús Silva Herzog, founded the Revista Mexicana de Economía as its official outlet, with Silva Herzog as director and Villaseñor as its editorial secretary. Villaseñor was later appointed director of the Institute.

After his departure from the BNCA, Villaseñor worked at the Mexico–Great Britain Claims Commission of the Ministry of Foreign Affairs, where he established his first professional relationship with the future Secretary of Finance, Eduardo Suárez. He was subsequently appointed head of the Economic Statistics Division of the National Department of Statistics, a position he held only briefly, since in early 1929 he was sent to London as Commercial Attaché at the Mexican Legation in Great Britain.

During the two years he spent in Europe, he carried out several official assignments and attended conferences in Warsaw, Seville, and Barcelona, in addition to making a brief visit to the USSR. While in London, he was able to deepen his study of economic issues, as he attended several courses in the evenings at the London School of Economics (LSE). He witnessed firsthand the effects of the 1929 crisis and the Great Depression, as well as the “sensation created by Keynes with his revolutionary ideas in economic theory, especially monetary theory and the possible intervention in business cycles” (Villaseñor 1974, 58). His stay in Europe led him to understand that national policy did not need to be developed by imitating any other country, but rather had to be exclusively Mexican, albeit as “technical” as possible.

From London, he wrote on various economic issues related to the 1929 economic crisis. Among the topics he addressed was the regrettable lack of systematic collection of economic statistics in Mexico, especially when compared to the examples of the United States or England. In this regard, he argued that the nascent central bank, above all, needed to undertake a concerted effort to collect and publish statistical information. The lack of data available to domestic scholars was becoming a serious obstacle to timely analysis of the state of the economy and of the measures necessary for its proper functioning, while the existing information was made available to foreigners—particularly to the International Committee of Bankers (ICB)—as part of the negotiations over external debt repayment. In this sense, he agreed with Silva Herzog that it was humiliating for nationals to depend on foreign assistance due to their own ignorance; thus, as a matter of basic justice, if not dignity, the situation needed to be remedied through free access to information.

In contrast to the ICB, Villaseñor proposed channeling existing resources toward fostering domestic economic activity through investment and prioritizing the payment of internal debt, in order to generate benefits and capital with which to later meet financial obligations abroad. Another criticism he formulated from the City of London was that the Bank of Mexico had not yet fully operated as a true central bank, and that the banking system remained under private control. It was therefore necessary for the Bank to assume its role as sole issuer and rediscount institution, and as the governing authority of the banking system, renouncing its activities as a commercial bank and ceasing to operate directly with the public—a transformation that effectively took place with the reforms to the Organic Law in 1931, 1936, and 1938.

In 1931, Villaseñor returned to Mexico and assumed the position of Head of the Consular Department at the Ministry of Foreign Affairs (Secretaría de Relaciones Exteriores, SRE). Upon his return, one of his most firmly held projects was the founding of a publication devoted to economic research, similar to those he had encountered during his time abroad, and with a clear vocation for the study of Mexico’s economic problems. Upon leaving his post at the SRE, the Secretary of Finance, Alberto J. Pani, offered him the position of Head of Press and Publications at the Ministry of Finance (Secretaría de Hacienda y Crédito Público, SHCP), where he was also placed in charge of directing the financial newspaper El Economista.

After this brief experience, in April 1934, together with Cosío Villegas, he founded the journal El Trimestre Económico, which published translations of leading authors (Keynes, Fisher, Cannan, Hicks, Leontief, Triffin, Tinbergen, Gregory, among others), as well as national studies, reviews, and related materials. Although its organizational structure underwent changes, both Cosío Villegas and Villaseñor remained at the helm of the journal until 1948.

He also joined the faculty of the newly established Economics program, created in 1929 within the School of Jurisprudence of the National University (a program whose organization he had helped design before departing for England). Villaseñor was responsible for the course on International Trade, and he immediately became aware of the lack of teaching and study materials, a gap he sought to fill by translating books from English on his own initiative so that students could use them. This situation reflected the broader scarcity of adequate materials for the training of future economists, a concern that ultimately led to the founding of the Fondo de Cultura Económica (FCE) in 1934 as a publishing house intended to supply the necessary academic literature. After overcoming its initial difficulties, the FCE consolidated its position and in 1937 also assumed responsibility for publishing El Trimestre Económico. Since then, the journal and the FCE have been inextricably linked.

Later, Secretary Pani appointed Villaseñor as a member of the National Banking Commission (Comisión Nacional Bancaria, CNB), a role he performed until February 1933, when he was named Secretary of the Board of Directors of the National Urban Mortgage and Public Works Bank (Banco Nacional Hipotecario Urbano y de Obras Públicas, BANHUOP). Two years later, he was appointed Consul General in New York, from where he made efforts to counteract the animosity that existed among the US public toward Mexico—particularly toward the government of President Cárdenas—as well as to promote tourism and disseminate Mexican culture. With the same objective, and together with Juan de Dios Bojórquez and the French journalist Léon Rollin, he organized the American Telegraphic News Agency (Agencia Noticiosa Telegráfica Americana, ANTA). The following year, he received instructions to return to Mexico to be appointed General Manager of the BNCA, a position that also allowed him to take a seat on the Board of Directors of the Mexico’s central bank as a representative of the federal government’s shareholding interest.

In 1938, Villaseñor was appointed Undersecretary of Finance, a position in which he became the closest collaborator of its Secretary, Eduardo Suárez. He was responsible for the preparation of public revenues and expenditures, tariffs, the administration of national assets, activities related to the federal expenditure budget, the drafting of the Revenue Law, among other duties (Villaseñor 1974, 118), in addition to a range of international responsibilities. Particularly noteworthy were his missions in Europe between August and November 1938 to seek buyers for Mexican crude oil following the British and US boycott in response to the oil expropriation, as well as his participation in 1939 in the First Meeting of Finance Ministers of the American Continent, which he attended as Suárez’s representative. There, he raised before US authorities the need for financing to support the development of Mexico’s national industry and, more broadly, the short- and long-term credit needs of Latin America. He insisted on the creation of an inter-American financial institution in the form of a development bank. His proposal was approved, and work on drafting its statutes began. In May 1940, nine nations signed an initial agreement, but due to the outbreak of the global conflict it was never ratified. In 1948, during the Pan-American Conference in Bogotá, Villaseñor renewed his efforts, albeit unsuccessfully. His initiative was taken up again in 1954 at the Inter-American Conference of Finance Ministers held in Quitandinha, Brazil, this time with the support of Chile and the Economic Commission for Latin America (ECLAC). Finally, after nearly twenty years of effort, the initiative materialized with the establishment of the Inter-American Development Bank in 1959 (Marichal 2011).

The nearly three years during which he served as Undersecretary of Finance coincided with a period of intense debate regarding the role of central bank financing of the government. This debate evolved from the overdrawing of the government’s account at the treasury to the issuance of debt instruments, through which the central bank could provide resources to finance development. As Undersecretary of Finance, Villaseñor had closer interaction with the Director of the Bank of Mexico, Luis Montes de Oca, whom he regarded as a “classical liberal,” both in theory and in practice. Villaseñor said that he learned a great deal from him, both from the legacy Montes de Oca had left within the Ministry of Finance during his tenure as Secretary and from the recommendations he received upon succeeding him as Director of the Bank of Mexico—such as the proposal to organize a Bankers’ Club, which was in fact established during Villaseñor’s administration.

As is well known, Montes de Oca resigned as Director of the Bank of Mexico after supporting the opposition presidential candidate. For this reason, in September 1940 Villaseñor was appointed as his successor, and was subsequently ratified in the position by the incoming president, Manuel Ávila Camacho. He remained in office throughout the entire six-year presidential term, until December 1946. Thereafter, his career shifted toward private banking when he assumed the directorship of Banco del Atlántico between 1949 and 1965. Nevertheless, he continued to carry out public duties and missions representing the Mexican government before foreign governments and international organizations. In retirement, he returned to writing, an activity he had long yearned for while contributing through his work to national development. He passed away in 1978.

Villaseñor’s arrival at the helm of the Bank of Mexico meant that the Ministry of Finance would enjoy the backing of the central bank in promoting an expansionary fiscal policy, which until then had been difficult to implement due to the defense of budgetary balance by some of its members. Secretary Suárez found in Villaseñor the most suitable person to assume the position, both because of his prior experience as a member of the central bank’s Board of Directors and his recent post as Undersecretary of Finance, as well as his training in monetary affairs.

The task ahead was immense. It was necessary to reform and adapt institutions in anticipation of the problems that the war was beginning to generate, in order to take advantage of the resulting conditions of the international environment and thus stimulate growth and development, particularly in industry. From late 1940 through 1941, several laws were enacted or amended: the Organic Law of Nacional Financiera, the Law of Manufacturing Industries, the Income Tax Law, the General Law of Credit Institutions, and the Organic Law of the Bank of Mexico. For Secretary Suárez, all these regulatory reforms were undertaken with the aim of “finding the proper middle ground,” so that deposits could be invested as fixed capital in enterprises. The objective was to stimulate economic activity by expanding access to credit in order to promote investments with increasing returns. In line with the priorities of the Ministry of Finance, Villaseñor directed the central bank according to the same criterion of the “proper middle ground” (perhaps akin to the Aristotelian notion of the mean), because he argued that:

The new director was clear that one of the Bank’s essential functions was the regulation of the means of payment, increasing them “when transactions require it” and reducing them “when they increase in a manner harmful relative to the volume of transactions” (Villaseñor 1944, 129). Accordingly, through the strengthening of the functions of the central bank, credit institutions, and commercial banking, as well as through the promotion of inflows of foreign investment, he sought to ensure that resources would not be scarce for productive purposes (though not for luxury consumption), while at the same time ensuring that amounts did not exceed real financing needs.

However, even the essential task of determining a “proper” quantity of currency in circulation proved impossible for the Bank of Mexico, owing to the difficulty of performing its classical function of open market operations. This was due to the depreciation of public debt, the existence of other competing securities—such as Road Bonds, Treasury Bonds of the Federal District Treasury Department, mortgage bonds, among others—and public speculation through the purchase of US dollars. According to Villaseñor, this situation could be remedied by making the market for government bonds more attractive to investors, which would require other securities to become less profitable or less secure (Villaseñor 1944, 130).

The Mexican banking system possessed enormous potential to foster the development of national industry, and it needed to be actively promoted. To this end, the central bank undertook efforts to encourage productive investment, consolidate institutions for agricultural credit—both ejidal and small landholders—and offer competitive interest rates to affiliated banks so that they, in turn, would extend credit to production. The creation of refinancing banks (bancos refaccionarios) capable of making industrial growth possible was urgent, as was the implementation of an “intelligent” credit policy to ensure that real resources met essential needs. For Villaseñor, cooperation among institutions was also imperative, because:

However, not everything was smooth sailing. Both in Mexico and internationally, inflationary problems had been triggered, most of them as a consequence of the Second World War (Banco de México 1940). Indeed, it is impossible to understand Villaseñor’s arguments and the decisions taken by the Bank of Mexico without considering that his tenure coincided with the social, political, and economic conditions imposed by the global conflict, which unfolded at a time when the government was firmly committed to a developmentalist policy as a means of exalting post-revolutionary nationalism.

In Mexico, the main drivers of inflation were: (1) increases in exports at relatively low prices, given the export quota agreements of 1941 and, subsequently, the trade treaty signed with the U.S. in late 1942 (Banco de México 1942); (2) the reduction and rising cost of imports, as Europe ceased exporting and U.S. export prices increased or were prohibited altogether (Banco de México 1941); (3) the extraordinary inflow of capital into the country, which resulted in an increase in the money supply without a productive counterpart capable of expanding the quantity of goods available on the market (Banco de México 1940); (4) shortages of goods, due to an increase in demand for consumer goods—produced, in turn, by population growth—that exceeded available supply; (5) speculation and hoarding of various products, especially following the establishment of official price ceilings by the government to combat inflation (Banco de México 1943); (6) remittances sent by Mexican workers—i.e., braceros—who migrated to the U.S. under bilateral agreements; (7) wage increases, driven by workers’ pressure as their purchasing power declined (Banco de México 1945); (8) tourism revenues; (9) the lack of adequate transportation, together with the impossibility of acquiring infrastructure (locomotives, railcars, etc.) in the quantities required; and (10) expansionary fiscal spending on public works, which led to higher remuneration per worker and, consequently, stimulated consumption in the face of a limited supply (Banco de México 1946).

For Villaseñor, the combined effect of these factors caused that the demand exceeded the existent supply. Indeed, the war generated an increase in extraordinary income and, consequently, a greater capacity to consume or save. The relative scarcity of goods available on the market, both domestic and imported, meant that attempts to acquire such goods merely exerted upward pressure on prices, giving rise to a form of forced autarkic saving. He expressed it as follows:

He was not mistaken. Figures 1, 2, 3 show a chronic trade deficit, accompanied by a growing money supply (driven more by increases in checking accounts than by currency in circulation) and a sharp rise in wholesale price indices and food costs.

Under these circumstances, Villaseñor considered it appropriate to deploy such surplus resources only insofar as they contributed to fostering the development of national industry and the agricultural sector, channeling them through the financial system where they were indispensable. If, given the limited supply available, such resources could not be translated into productive investments, it was preferable to keep them safeguarded for use once conditions normalized (i.e., when peace was restored), rather than allowing their use to exert unjustified pressure on price levels. The pressure was unjustified because, in his view, although an expansionary fiscal policy necessarily generated inflation, it was nonetheless appropriate insofar as it ultimately promoted development; by contrast, incoming capital flows could leave the country once the war ended without having generated any form of economic progress.

Villaseñor thus found himself between a rock and a hard place: on the one hand, he had to support a policy of promotion through public spending; on the other, he was tasked with containing the inflation produced by international wartime conditions. Initially, he argued that curbing the expansionary policy of public works financed with the support of the central bank—an option recommended by the orthodox camp—was not a solution. Even if such spending were halted, inflation would not subside, precisely because a substantial portion of the increase in the money supply was driven by international factors directly affecting the balance of payments. Moreover, such a course of action would be contradictory, as it would prevent efforts to “combat the rise in prices at its root” (Villaseñor 1944, 171).

It was therefore necessary to restrain present consumption through compulsory saving. To this end, the legal reserve requirement imposed on banks—the recipients of the refuge capital flows that, as noted, enabled credit expansion and thus increased the money supply—was gradually raised. As shown in Figure 4, the mandatory minimum reserve increased, although the effective reserve rose by an even greater margin.

In February 1940, a Credit Review Board (Junta Revisora de Créditos) was established with the aim of limiting the money supply through the legal reserve requirement, which reached a maximum ceiling of 15% (Banco de México 1941). Following the reform of the Organic Law in 1941, the reserve requirement was set at a range between 5% and 20%. In addition, by simplifying rediscount operations, credit allocated to productive investments increased. The Bank also expanded its open market operations, including the purchase and sale of general and commercial bonds, as well as participation certificates. To finance government investment, it continued acquiring Treasury certificates and Public Works Bonds of the United Mexican States (with a maturity of 50 years). In 1942, the Industrial Promotion Fund (Fondo de Fomento a la Industria) was established, with the central bank acting as its trustee, and qualitative credit controls were introduced, granting preferential credit to banks whose portfolios consisted of 60% or more of documents destined for production (Luna 2025).

Other measures adopted in 1943 to curb the expansion of the money supply—which had grown by 52.3% relative to the previous year—included the Bank’s promotion of gold and silver purchases by the public; tighter credit controls to limit speculative operations; the freezing of prices, wages, and rents (the latter in the capital); and the establishment of a consortium among the National Distribution and Regulation Agency (Nacional Distribuidora y Reguladora) , the BNCA, the National Ejidal Credit Bank (Banco Nacional de Crédito Ejidal), and the Mexican Export and Import Company (Compañía Exportadora e Importadora Mexicana). This consortium intervened in the market and granted subsidies to supply essential goods through public stores.

Beginning in November 1942, the central bank entered into a so-called “gentlemen’s agreement” (pacto de caballeros) with commercial banks in the capital, establishing ceilings on loan portfolios and deposits. Under this agreement, banks committed to limiting their portfolios to the levels reached by the end of October 1942, with enforcement beginning in March of the following year (Banco de México 1943). Although the agreement was largely respected, an increase in credit granted by state banks was observed. Consequently, between mid-August and September, Banco de México raised the compulsory deposit requirement for these banks from 20% to 30% (Luna 2019). At the end of the year, the agreement with capital-city banks expired and was replaced by an increase in the mandatory reserve to 45%, which rose to 50% at the beginning of 1944—the maximum allowed under Article 35 of the Bank’s Organic Law—while simultaneously increasing the permissible ratio of liabilities to capital from 10:1 to 15:1 in order to discourage banks from raising capital merely to accommodate growing deposits (Banco de México 1945).

Despite these measures, deposits and loan portfolios continued to expand. As a result, a new “gentlemen’s agreement” was reached with capital-city banks, requiring them to “maintain on deposit at Banco de México or to invest in coined gold, gold bullion, credit instruments derived from agricultural operations endorsed by Banco de México, government bonds, and U.S. dollars abroad” any liabilities exceeding their value as of May 17, 1944 (Banco de México 1944). Additionally, reserve requirements for banks in the rest of the country were increased, reaching 35% in July where there were no central bank branches and 40% where branches existed. As local banks’ credit bases continued to grow, reserve requirements were raised gradually, reaching 45% in areas without branches and 50% in those with branches by June and September 1945, respectively (Banco de México 1946; Banco de México 1947).

Given that banks opted to minimize mandatory deposits, it was deemed necessary to reform the already mentioned Article 35 so that all demand liabilities would be subject to reserve requirements (with the exception of certain special-regime accounts), and that any shortfall would entail the payment of penalty interest starting April 30, 1945 (Banco de México 1946). Despite the highly restrictive nature of these measures, aimed at preventing a decline in the purchasing power of the currency, the money supply continued to grow until 1946, when it began to contract. At that point, the central bank relaxed its restrictive policy by reducing the mandatory reserve ratio and increasing to 15% the proportion of government securities held as effective reserves. The agreement was terminated, and capital-city banks were allowed to expand credit, subject only to compliance with the mandatory reserve requirement (Banco de México 1947).

Criticism of the Bank’s actions soon followed. From the orthodox camp, it was argued that higher reserve requirements constrained private credit and thus impeded the financing of the public deficit. For instance, Miguel Palacios Macedo blamed public spending as the primary cause of inflation. Similar conclusions were reached by Ludwig von Mises, the eminent representative of the Austrian School, in his 1943 study of the Mexican economy following his stay in the country (Romero-Sotelo 2012). Villaseñor, however, rejected these criticisms, maintaining that public spending was not the cause of inflation and, moreover, that it contributed to raising remuneration per worker—that is, to generating greater purchasing power—which translated into improved living standards, an enhance to industrial production, and the capitalization of profits. These factors, in turn, positively affected levels of productive employment, once again stimulating purchasing power. Thus, Villaseñor labeled critics of the revolutionary program as “doomsayers” and “intransigent revisionists” who, sooner or later, would have to acknowledge that progress was being made.

He further argued that, had the Bank not adopted these restrictive measures, commercial banks would have expanded domestic credit. When capital flows reversed at the end of the war, banks would then have rushed to collect outstanding loans under harsher conditions, potentially triggering “the beginning of a serious crisis that would be reflected primarily in losses, reduced economic growth, and enormous suffering for the Mexican people” (Villaseñor 1944, 213). He added that those same critics would have been the first to accuse the Bank of failing to foresee the catastrophe.

A forward-looking man, Villaseñor sought to anticipate future developments. Even before the end of the Second World War, he attempted to establish the necessary conditions to ensure postwar economic development not only for Mexico but for Latin America as a whole. He foresaw a rapid outflow of capital, an increase in imports to satisfy pent-up demand, and a decline in exports. Consequently, he considered it essential to attract investment in order to avoid trade deficits, reserve shortages, and exchange-rate weakness. He also believed that the United States would strengthen its position as an international creditor at the end of the war, given the excess supply that peace would generate in that country. Accordingly, he encouraged channeling part of these resources into investments in strategic Latin American sectors, both to promote regional industrialization and to avoid an economic slowdown akin to that of 1929, especially in light of the probable deflation that peace would bring. In his words, once the war had ended:

For Villaseñor, this potential future scenario was alarming because it would negatively affect the population’s quality of life, contravening the Atlantic Charter’s principle of ensuring better living conditions for all. He argued, however, that more than an easy supply of dollars, the region required capital, technology, and knowledge to “achieve higher per capita productivity, lower production costs, and ultimately lower selling prices that would provide, for the benefit of all, greater purchasing power for wages” (Villaseñor 1944, 202).

He reiterated that the Bank would not only continue purchasing bond issues from financial institutions that provided industrial development credit, but would also increase the number of such issues acquired as excess liquidity diminished, as it was used to purchase machinery, equipment, and various goods from abroad.

After the end of the global conflict, at the 1945 National Banking Convention, Villaseñor delivered a lecture arguing that private banking had not cooperated sufficiently to prevent inflation during the war. He further noted that a financial framework was still needed to promote private investment in irrigation and agriculture. Several organizations, led by the Bankers’ Association (Asociación de Banqueros), reacted negatively to his remarks, prompting the Director to submit his resignation. It was not accepted, however, and he completed his term in December 1946.

In 1946, in his inaugural address as host and chair of the First Meeting of Central Banking Technicians of the American Continent, Director Eduardo Villaseñor referred to the distinctive position that central banks were beginning to occupy in those years—a position that did not correspond to any established theoretical archetype and that, in his view, should take the form of an institution that:

This pragmatic orientation is hardly surprising. Even a cursory review of Eduardo Villaseñor’s life and career reveals how his intellectual interests evolved from literature to the study of agricultural problems, later shifting toward monetary issues and finally concentrating on the study of the banking system and central banking. At each stage, his thinking was shaped by the complex set of challenges imposed by economic policy and by the developmental needs confronting Mexico’s young post-revolutionary economic institutions.

Although by the early 1940s Banco de México had completed three decades of existence, it can be argued that its character as a central bank only crystallized after a difficult process of consolidation that unfolded throughout the 1930s. During that period, the institution had not yet developed the instruments necessary to contain the persistent rise in prices brought about by the war. Moreover, the institutional framework established by the 1936 law prevented the bank from assuming an active role in the development strategy that had begun during President Lázaro Cárdenas’s administration.

For the financial authorities, the global war constituted a conjuncture that made it possible to accelerate the country’s economic development, a perception that led Banco de México to assume a prominent role within the broader development strategy. The emergency situation required a stricter, more direct, and more rapid intervention of the state in economic phenomena. As a result of the reforms implemented under Villaseñor’s leadership, the bank—beyond its existing powers of issuance and regulation—also acquired development-oriented instruments and greater authority to conduct a more interventionist monetary policy. The outcome was the consolidation of Banco de México as a heterodox central bank, one that pursued a monetary policy consistent with the exigencies of the moment and aligned with the government’s overall economic policy.

Lacking the regulatory tools available to the central banks of advanced economies, Banco de México was compelled to experiment and to introduce heterodox measures in its operations in order to exercise control. This set of changes, implemented under Eduardo Villaseñor’s administration and initially conceived as contingent responses, gradually consolidated over time. By at least the 1960s, they constituted the foundation of the Mexican credit system and provided an institutional framework for central banking that remained in place until at least the early 1980s.