Mexico is showing ambition. The central bank called Banxico hopes to launch its own digital currency in 2025. In technical jargon, this is called CBDC or central bank digital currency.
Victoria Rodríguez, president of the central bank, says that the new sovereign digital currency will introduce more citizens to banking. rodriguez says:
“The digital currency aims to generate means of payment oriented towards financial inclusion, expanding fast, secure, efficient and interoperable payment options in the economy and implementing additional functionalities to the (existing) means of payment, such as automation mechanisms, programmability and innovation.”
No cash replacement
According to the central bank, the Mexican digital currency aims to improve, not necessarily replace, the current physical money system. These same words have also been spoken by the EU central bank and we are very skeptical about it. However, in Mexico there is more logic behind it and the promise not to replace cash seems more credible.
That’s because the situation is different. In Europe everyone has a bank account and is used to doing business with someone or something in the banking world.
According to Statista, only 38.4% of the Mexican population has a bank account. The Wall Street Journal reported that the economy relies heavily on paper money for most transactions, which take place in the informal sector of the economy. The informal sector represented 22% of Mexico’s gross domestic product in 2020.
Think of short trips in a taxi, transactions in neighborhood supermarkets or buying food on the street.
CBDC stands for control
A CBDC, by definition, comes with a degree of control, and this is usually sold as a way to protect citizens. Likewise in Mexico.
Rodríguez writes that the central bank is more open to the possibility of regulating digital currencies, with the main objective of protecting citizen transactions.
“Several central banking groups, in which Banxico participates, are reviewing this regulatory issue to further protect those who participate in the financial system.”
There is still much left to do
It is ambitious to launch a CBDC. Much remains to be done in the technological, legal and legislative fields. Also, there will most likely be a massive government campaign to inform the people. Mexico has not made much progress in this regard.
In December 2021, the central bank announced that the CBDC would launch in 2024. Banxico, Mexico’s central bank, began talks with financial institutions last year about the technical obstacles to launching a state-backed digital currency. The bank has also outlined a strategy to use elements of its SPEI method for interbank payments in its development and is collaborating with the Bank for International Settlements (BIS).
In June 2021, Ricardo Salinas Pliego, the third richest person in Mexico, announced that he was building an infrastructure to accept bitcoins at his bank, Banco Azteca. However, the central bank, the Treasury Department and the regulator said at the time that bitcoin is not legal tender in Mexico and that financial companies cannot offer cryptocurrency-related products.
“Although they can be exchanged, they do not fulfill the function of money because their acceptance as a form of payment is limited and they are not a good reserve or value reference.”
Another example that without bitcoin, CBDCs could not even exist.
Digital money is a human right
Earlier this month, Senator Indira Kempis introduced a bill that establishes that the government is responsible for ushering in a new era of digital currencies, arguing that it is a human right for Mexican citizens:
“The intervention of the Mexican State in the economy must be valued and accepted by the different legal actors as a natural and unavoidable relationship with the discourses on human rights, competitiveness and development.”
Will Bitcoin become legal tender in Mexico?
Kempis used bitcoin to illustrate the power of a decentralized network, but also says that not all digital currencies introduced need to be decentralized:
“As for the protocols, the computers that operate on the network and record the asset transactions must follow the issuance rules to limit the transactions, and those rules must be established in predefined protocols,” the bill says. “It is possible that the new computers are part of the network. However, it is not a necessary function.
But, says Kempis, if this bill passes, it will form the basis for Bitcoin to be legal tender.