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Mexico: Cash is Alive and Well

Categories : Cash and Crises, Cash generates security, Cash is also a store of value
April 27, 2021
Published in : ATMs, Banknotes, Coronavirus, Mexico
Cash in circulation grew 30.33% in Mexico during the Covid-19 pandemic, driven by large-denomination banknotes. ATM transactions declined in volume but rose an impressive 15.9% in value. Mexico’s cash infrastructure has expanded despite the pandemic.
Manuel A. Bautista-González

Columbia University in the City of New York

According to Bank of International Settlements’ (BIS) data, Mexico’s cash in circulation grew by 42.5% between 2015 and 2019. Anticipating a sustained growth in the demand for cash, Banco de México (the country’s central bank) opened a second banknote printing facility in El Salto, Jalisco, in 2018. That same year, Mexico’s ratio of cash in circulation to GDP was 6.9%, equal to the median and slightly lower than the 8% average in the most recent BIS comparison available.

The Mexican Central Bank Did Not Recommend Using Cash Less During the Covid-19 Pandemic

As SARS-CoV-2 spread throughout the world, Banco de México advised cash holders to “wash their hands correctly and frequently, and to avoid touching their nose, eyes and mouth after touching any surface or object, including banknotes and coins.” In June 2020, the Mexico City local government, in alliance with the Asociación de Bancos de México (ABM, Mexican Banking Association) promoted alternatives to cash, such as the Sistema de Pagos Electrónicos Bancarios (SPEI, Interbanking Electronic Payments System) and Cobro Digital (CoDi, Digital Charging).

Cash in Circulation Grows, Driven by Large-Denomination Banknotes

By the end of 2020, Mexico’s cash in circulation to GDP ratio increased to 8.5%. Banco de México data shows that during the Covid-19 pandemic, cash in the hands of the public has risen by a staggering 30.33%, going from MX$1.67 trillion (US$84 billion) on March 11, 2020, the day when the WHO declared Covid-19 a pandemic, to MX$2.18 trillion (US$110 billion) on March 31, 2021. The last amount would result in MX$17,277.35 (US$872.05) in cash per capita, based on population data from the 2020 census.

Graph 1. Mexico: Banknotes and coins in circulation, February 2011-February 2021 (thousands of Mexican pesos)

The increase of cash in circulation in Mexico has been driven by large-denomination banknotes, as in other countries during the pandemic. The volume of MX$1,000 notes (US$50.47) grew 34.7%, followed by MX$500 notes (US$25.24), with 33.1%; MX$200 notes (US$10.09), with 18.2%, and MX$100 notes (US$5.05), with an increase of 14.21%. Other small-denomination notes have grown a bit less or stayed the same throughout the pandemic: notes of MX$20 (US$1.01) rose 10.9%, and MX$50 notes (US$2.52) grew 0.84%.

Graph 2. Mexico: Banknotes by denomination, January 2020-March 2021 (billions of notes)

Source: own elaboration with Banco de México data.

Cash Infrastructure Expands Slightly; ATM Transactions Decline in Volume But Increase in Value

Despite sensational media coverage announcing the premature death of cash and the advent of cashless payments in Mexico, the country’s cash infrastructure has expanded during the pandemic. The number of ATMs grew 1.3%, going from 56.63 thousand ATMs in the first quarter of 2020 to 57.4 thousand in the last quarter of 2020. ATMs in bank branches grew 2.1%, from 27.7 thousand in January-March 2020 to 28.3 thousand ATMs in October-December 2020. ATMs outside of bank branches increased by 0.58%, from 28.93 thousand in 2020:Q1 to 29.1 thousand ATMs in 2020:Q4.

Although the volume of ATM transactions declined by 2.9% during the first year of the Covid-19 pandemic, their value increased by an impressive 15.9%. Average ATM withdrawals increased 19.5%, going from MX$2,057 (US$103.82) in the first quarter of 2020 to MX$2,458 (US$124.06) in the last quarter.

Despite the Covid-19 Pandemic and the Economic Collapse, Cash is Alive and Well in Mexico

In 2020, the Mexican economy contracted 8.5% in seasonally adjusted terms, its largest fall since 1932, during the Great Depression. As we can see with the most recent data, cash is alive and well in Mexico, despite the economic collapse.

There are several explanations for the significant growth in the demand for cash during the Covid-19 pandemic:

The demand for cash as a store of value and reserve amid crises can explain the vigorous growth in cash in circulation in Mexico. This phenomenon has occurred in many countries worldwide during the Covid-19 pandemic, such as Argentina, Australia, the European Union, the United States, the United KingdomJapan, Singapore, India, and Colombia.