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Mexico is considering banning the use of cash to buy gasoline and pay tolls, as a way to combat tax evasion and money laundering, according to people with direct knowledge of the discussions.
The plan, which has been discussed between the banking industry and the Government, has not been fully approved.
They will not make a final decision until after the Bank of Mexico (Banxico) implements its digital payment platform known as CoDi next month, which is part of a broader government program to bring more Mexicans to the banking system and reduce the cash, according to the people, who asked not to be identified, since the plan is not public.
Mexico is ‘flooded’ with cash because of the informal economy of street merchants and illicit drug trafficking. Cash is used for between 80 percent and 90 percent of transactions in Mexico, Finance Secretary Arturo Herrera said in March, while he was still undersecretary. At a time of economic slowdown, the plan could also help expand Mexico’s tax base.
The Mexican Ministry of Finance and the banking association did not immediately respond to a request for comment.
In addition, the measure will help identify service stations that buy stolen fuel by tracking their sales electronically, both people said.
President Andrés Manuel López Obrador has made vigorous measures against theft of fuel to Petróleos Mexicanos (Pemex), the cornerstone of his drive to eradicate widespread corruption.
For banks, the plan to boost more transactions without cash – although without commissions – could be a boost to their customer base and an opportunity to provide more Mexican cards, loans, and mortgages. The CoDi system – which is based on QR codes with mobile phones – and the ban on cash to pay for gasoline and tolls could increase digital payments tenfold, one of the people said.
Only about two-fifths of Mexicans have bank accounts, according to World Bank data, and Mexico has the tax collection rate as a proportion of its lowest economy among members of the Organization for Economic Cooperation and Development (OECD).
López Obrador surprised the bankers in Mexico by adopting a strategy to eliminate the use of cash that their predecessors had previously rejected.
The ambitious project is consistent with its campaign against corruption, as well as the desire to achieve greater financial inclusion in remote parts of the country of 125 million inhabitants.
Undoubtedly, there are many challenges to move Mexicans away from cash, including poor connectivity for mobile networks and internet service outside the main urban areas.
Given the need to give consumers time to prepare for a ban on cash in goods such as gasoline and highway tolls, the application of such a policy may take some time. Other areas that could be pushed into digital payments include public transportation, school fees, electricity bills, and passport fees, people said.
India introduced an even wider ban on cash in 2016, which includes high denomination bills. While it did not completely eliminate the illicit use of cash, it did broaden the country’s tax base and increase digital payments.