October 17, 2018 / 8:04 PM / a month ago

U.S. Treasury triples potential credit line to Mexico

Bundles of Mexican Peso banknotes are pictured at a currency exchange shop in Ciudad Juarez, Mexico January 15, 2018. REUTERS/Jose Luis Gonzalez

WASHINGTON (Reuters) - The United States can extend a longer line of credit to Mexico if the country faces a currency crisis, according to the terms of a new agreement signed on Wednesday that follows the two countries’ trade deal.

Mexico can negotiate for up to $9 billion under a currency “swap line” with the U.S. Treasury Department, up from $3 billion under a deal last updated in 1994, when the countries’ North American Free Trade Agreement (NAFTA) took effect, according to a joint statement by U.S. Treasury Secretary Steven Mnuchin and Mexican Finance Minister Jose Antonio Gonzalez Anaya.

The agreement comes as emerging market currencies globally face pressure from a rising U.S. dollar as the Federal Reserve lifts interest rates, but a senior Treasury official told reporters the agreement was not made anticipating any such problems in Mexico given its current level of reserves.

Mexico also has access to a $3 billion credit line with the U.S. Federal Reserve, which it tapped during a 1995 peso crisis.

The United States, Mexico and Canada recently reached a new trade agreement to replace NAFTA called the United States-Mexico-Canada Agreement (USMCA) after more than a year of talks.

That new trade deal is set to be signed on Nov. 30, but passage of the deal by the U.S. Congress is not expected until the spring of 2019, after November elections which could shift control of the House of Representatives to Democrats from Republicans.

The new U.S.-Mexico financing agreement updates a program in place since 1941. It does not guarantee any financing or set out the specific terms of such lending.

Reporting by Trevor Hunnicutt; editing by Clive McKeef

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