Fighting tax evasion and money laundering through cash ban
Mexico’s federal government is considering banning cash when purchasing gasoline and paying toll fees. Although the plan has yet to be fully approved, insiders told Bloomberg that the plan aims to fight tax evasion and money laundering since electronic payments can be more easily tracked. They say it could also help increase government revenue by widening the tax base while also benefiting banks. At the same time, industry executives at Mexico’s central bank (Banco de Mexico) announced that the country is ready for a ‘mostly cashless’ economy by 2025, with business leaders including Laura Cruz of Mastercard Mexico and Luz Adriana Ramírez, CEO of Visa Mexico believing that cash could fully disappear from the economy.
But with 42 million Mexicans lacking bank accounts, what’s the impact of a cash-free society for the average person?
Mexico’s latest electronic payment system
Mexico’s new government sees financial technology as an opportunity to bridge the poverty gap and extend financial inclusion amongst citizens. The central bank announced in February the launch of its latest electronic payment system, the Cobro Digital (CoDi), which is designed to reduce the use of cash by allowing customers to make free payments online and in person through smartphones, using QR codes.
Data collected in 2017 by The World Bank show that only 37% of Mexicans have bank accounts. The number of account holders has even declined from 40% in 2014 to 37% in 2017. Physical money is still predominantly used across society with 80-90% of transactions made in cash, previous Finance Minister Arturo Herrera said in March this year.
Reuters identifies two major hurdles: poor telecommunications infrastructure in remote areas and a lack of trust in the banking system. This is illustrated by the story of coffee farmer Martin Romero, who comes from a small town in the state of Oaxaca that has no bank branches. Paid in cash, he doesn’t earn enough to save or borrow for large expenses – and stands as a prime example of many more who cannot imagine the idea of letting go of physical cash.
According to Cardtronics’ Global Cash Index™,