The Bank of Mexico (“Banxico”) is moving ahead with plans to launch a digital currency by 2024. This is an ambitious move for an economy dominated by cash. The Government thinks the idea will foster greater financial inclusion and encourage banking institutions to adopt the latest payments technology. Given Mexico’s huge informal economy and stark socio-economic divides in access to technology – this will be challenging.
On balance, our sources felt the move towards a digital currency was positive but remained sceptical about the technological infrastructure. Banxico wants the currency to complement rather than replace traditional currency – this is a realistic and pragmatic approach. An executive at Banxico commented, “The reality is that in order to effectively move towards using a digital currency, we also need the right technology to facilitate transactions and to reduce dependence on our traditional currency.”
“The reality is that in order to effectively move towards using a digital currency, we also need the right technology.”
Executive, Bank of Mexico
Banxico is making a concerted effort to encourage institutions to adopt so-called ‘digital collection’ for things like paying taxes and receiving housing credits. The bank and the Government will need to work hard to convince old-fashioned institutions and cynical customers that digital collection is a convenient alternative alongside more traditional options.
Smartphones are most often used to access and manage digital financial products. However, not everybody in Mexico has a smartphone and even of those that do, few know much about digital currencies and nor why they should feel inclined to use them. The executive cautioned, “One of the key challenges is that we do see a correlation between people who have not entered the financial product market and those who do not have smartphones.”
Indeed, a senior economic analyst in Mexico said, “The real challenge in making the digital currency a success will be to simultaneously address Mexico’s high rate of economic informality, with a large number of cash operations. Not everyone has the requisite financial and technological education to adapt to electronic financial technology including apps. However, Banxico should be lauded in its efforts to help the country move towards a digital economy.”
“The real challenge in making the digital currency a success will be to simultaneously address Mexico’s high rate of economic informality, with a large number of cash operations.”
Senior economic analyst, Mexico
Despite setbacks, Mexico does have a wide penetration of smartphones which is likely to grow every year – the question is whether it will grow fast enough to make 2024 a realistic launch date for the currency.
Could Mexico’s tumultuous national politics put a hold on the rollout and interfere with the sovereignty of Banxico? The executive doesn’t think so, “The autonomy of Banxico is unquestionable. It is certainly helpful the current administration is in favour of adopting a digital currency but we do not require a congressional seal of approval and internal decisions will not be affected by external politics.”