Cryptocurrencies Are Not Money, Mexico Warns of Risks

Earlier this month, El Salvador made a dramatic move to make Bitcoin a legal tender, a world first.

By Reuters | Updated: 29 June 2021 11:43 IST

Cryptocurrencies Are Not Money, Mexico Warns of Risks

Mexican financial institutions were asked to avoid the risks associated with cryptocurrency operations

Highlights

The financial authorities reiterated their warnings
Cryptocurrencies are prohibited from Mexican financial system
Cryptocurrencies tend to be volatile and speculative assets

Mexican financial authorities on Monday said that crypto assets are not legal tender in Mexico and are not considered currencies under current laws, warning that financial institutions that operate with them are subject to sanctions.

The joint statement by the Bank of Mexico, finance ministry and banking regulator comes after Mexican billionaire Ricardo Salinas Pliego on Sunday said his banking business, Banco Azteca, may begin using Bitcoin, which would make it the country's first bank to start accepting the cryptocurrency.

Earlier this month, El Salvador made a dramatic move to make Bitcoin a legal tender, a world first. Bitcoin price in India stood at Rs. 25.8 lakhs as of 11:30am IST on June 29.

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"The financial authorities reiterate their warnings ... on the risks inherent in the use of so-called 'virtual assets' as a means of exchange, as a store of value or as another form of investment," the statement said.

"The country's financial institutions are not authorised to carry out and offer to the public operations with virtual assets, such as Bitcoin, Ether, and others in order to maintain a healthy distance between them and the financial system." Ether price in India stood at Rs. 1.56 lakhs as of 11:30am IST on June 29.

Mexican financial institutions must also avoid transmitting to their clients the risks associated with cryptocurrency operations, the statement said, adding that the use of so-called stablecoins - a form of cryptocurrency usually pegged to a traditional currency - was not permitted under current Mexican law.

Finance minister Arturo Herrera said at a news conference that under current rules cryptocurrencies are prohibited from being used in the Mexican financial system, underscoring that the prohibition will likely not change in the near term.

Cryptocurrencies tend to be volatile and speculative assets and while they can be traded, they do not serve the same function as money, "since their acceptance as a means of payment is limited and they are not a good reserve or value reference," said the statement.

The stern warning was seen as aimed at halting Salinas Pliego, an ally of President Andres Manuel Lopez Obrador's MORENA party. The magnate had previously backed a MORENA bill that would have forced the Bank of Mexico to buy up foreign cash in a bid to help migrants and tourists repatriate US dollars.

The bill, seen largely benefiting Azteca, one of the country's leading remittance processors, was eventually overhauled but not before it shook confidence in the country's financial system as authorities said it could compel the central bank to add laundered drug money to its reserves.

"It's a reaction to the comments Salinas Pliego made over the weekend. It's a way of saying his bank can't accept Bitcoins even though he wants to ... it's a way of putting a stop to him," said Luis Gonzali, co-director at Franklin Templeton Investments in Mexico.

© Thomson Reuters 2021

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