Mexico’s Central Bank Just Broke with the War on Cash
Motivated by inflation?
A strange thing just happened in Mexico. The Bank of Mexico (Banxico), announced that it is considering launching a 2,000 peso note (ca. $105), double the highest denomination note currently in circulation. It’s also considering doing away with Mexico’s lowest denomination 20 peso bill (ca. $1.05), which will be replaced by a coin with the same face value.
Not everyone’s happy about the proposal, which forms part of a range of measures aimed at updating Mexico’s currency notes. Miguel González Ibarra, director of the Center for Financial Studies and Public Finance of the National Autonomous University of Mexico, said that introducing a higher denomination bill flies in the face of the broad trend among advanced economies to weed out such notes.
In 2016 Peter Sands, the former CEO of the British bank Standard Chartered, set the tone of the debate when he published a report for Harvard Kennedy School of Government imploring central banks around the world to stop issuing high-denomination notes and bills. They include the €500 note, the $100 bill, the CHF1,000 note and the £50 note. This is the first rule of the war on cash: make high-denomination notes taboo in law-abiding circles.
“Such notes are the preferred payment mechanism of those pursuing illicit activities, given the anonymity and lack of transaction record they offer, and the relative ease with which they can be transported and moved,” the report warned. In other words, only criminals use cash. High-denomination notes, the report added, “play little role in the functioning of the legitimate economy, yet a crucial role in the underground economy.”
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