Mexico’s relationship with Bitcoin could soon be about to flourish as the Mexican economy continues to stagnate after the second quarter. With new monetary policy decisions in the pipeline, more citizens could choose Bitcoin as an alternative method to preserve their savings.
Mexico already has quite a history with Bitcoin. The government has gone above and beyond to implement regulations surrounding the cryptocurrency market. While these efforts might have slowed down the development of fintech start-ups, they’ve unquestionably made cryptocurrencies more trustworthy (or regulated at least).
The Mexican economy is weaker than estimated
The Mexican economy is facing a technical recession. This is generally defined as two consecutive quarters of economic contraction, such as the country has witnessed in 2019.
The numbers don’t look very good for the economic stability of the country. For Q1 2019, the gross domestic product (GDP) figures were revised down by 0.1%, showing that the economy contracted 0.3% from Q4 2018.
However, President Andres Manuel Lopez Obrador isn’t worried about the effects of this stagnation. He said:
“Now there is growth and better income distribution, most Mexicans have more purchasing power. That’s why I’m not very concerned about the matter.”
However, low growth rates could soon turn negative, which may increase the risks for a country with one of the largest GDPs worldwide. Mexico is also fighting against low investor confidence, which is also reducing its hopes for growth.
Last but not least, the country managed to implement a series of rigid regulations that slow down start-ups and companies in the fintech industry.
The situation in Mexico is hard to understand for people who aren’t aware of the contradictions in this country. Here, more than 40% of the population lives in poverty, with no bank accounts, registered income, or financial education.
Increased mistrust in financial institutions
Mexicans get most of their money from remittances. The country is the third-largest recipient of funds from outside the country, with an income from payments that exceeded $31 billion in 2017.
However, the costs of receiving money are high, often over 5% and even 7%. This alone could be a large reason Mexicans don’t like banks or other financial institutions. For them, cryptocurrency could be an excellent alternative for international transactions.
Mexico and Bitcoin could make international money transfers faster, cheaper, and more transparent than ever before.
Less than half of Mexico’s population has a bank account, which makes it difficult for a large number of users to receive money. Cryptocurrencies could offer Mexicans a cost-effective alternative and more control over their funds.
It wouldn’t be surprising, then, if Mexicans came to trust Bitcoin more than banks.
The Mexico Bitcoin story: How BTC could help
First of all, Bitcoin could be the perfect way around banks and their excessive fees. Cryptocurrencies would allow impoverished people to avoid huge losses every time they receive money, both from transaction fees and exchange rates.
If they could also use Bitcoin to make purchases, they wouldn’t need to rely on costly financial platforms at all.
Would that benefit the Mexican economy as a whole? Most probably yes, because it would encourage consumption. People have more money, so they have some extra cash to spend, save, or invest at the end of the month.
Bitcoin could also teach the locals to store value. In the long run, it could help to create a more consistent middle class – essential for any economy that aims to reach healthy growth.
Bitcoin doesn’t develop independently from the global economy and you need more than a recession in one country to majorly increase adoption of the cryptocurrency. However, when economic conditions are favourable for alternative assets and payment methods, Bitcoin starts to shine.
Moreover, in Mexico, people can easily buy Bitcoin with cash. The country has 11 Bitcoin ATMs where people can purchase digital coins without a bank account.
The takeaway
The leftist politics of President Andres Manuel Lopez Obrador seem to have brought Mexico to a technical recession – two consecutive quarters of economic contraction. While this alone is far from putting the population at risk, it certainly doesn’t encourage growth or development.
People willing to keep funds safe may soon look for alternative solutions. Since Mexicans are not fond of banks and other financial institutions, Bitcoin could be the next big thing in this country.
Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.