With the demand for virtual assets so high, central banks around the world are considering issuing their own digital currencies. The blockchain community is a driving force behind the idea of digital central banking. The main cryptocurrencies, such as Bitcoin or Ethereum, are meant to be electronic mediums of exchange. However, due to their highly unpredictable performance, they cannot be used as a stable means of payment, and rather serve as an investment opportunity. Central bank digital currencies, also called CBDC, serve as a safe alternative to the very unstable cryptocurrencies. For that reason, Banxico, Mexico’s central bank, is also moving forward to create such a digital currency.
CBDC’s are a digital version of paper money. They are designed to be used like cash and backed by the central bank. Othon Moreno, Director of Policy and Research in the Payment Systems Division of the Central Bank of Mexico, explains that a future CBDC will be used as a cryptocurrency. However, this currency will then only be issued in a centralized manner by the central bank, thus providing legal certainty and liability. The issuance of a CBDC by the central bank aims to expand payment options in the economy, making them faster, safer, more efficient and interoperable. It also provides financial inclusion in the digital economy for unbanked individuals with more difficult access to financial infrastructure.
On December 29, 2021, the Mexican government announced its interest in Banxico having its own digital currency. The reason is that “they consider it extremely important to implement these new technologies to achieve financial inclusion in the country.” Banxico assured its finalization by 2024. The private Mexican banks are also showing initiative to work with the Central Bank to create a digital currency. So far, it is known that Banxico is working on the creation of a platform for the introduction of a digital currency, based on the already existing Electronic Interbank Payment System SPEI.
The prerequisite for a successful introduction of the CBDC in Mexico is that it be widely accepted as a new payment method. This can only be achieved if the currency is easy to use for buying, selling, saving and transferring. Like any other product, a CBDC needs a market that demands its use to be successful. This could be a challenge for Banxico, as currently 86 percent of transactions in Mexico are still done with cash. However, the country is undergoing a digital transformation and its population, as it transitions to a digital economy, is expected to trust new opportunities.
Mexico thus joins a group of countries that are currently planning or already developing their own digital currencies. The European Union is also considering the introduction of its own digital euro.
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