Mexico mulls banning cash payments for gas, highway tolls

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Mexico is considering a ban on the use of cash for purchasing gasoline and to pay for tolls as a way to fight 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, hasn’t been fully approved. A final decision may not be taken until after the central bank rolls out its digital payments platform, known as CoDi, next month. CoDi is part of a broader government program to push more Mexicans into the banking system and cut down on cash.

Mexico is awash in cash, which is is used for between 80% to 90% of transactions in Mexico, As the Mexican economy slows, the plan could also widen Mexico’s tax base. Mexico’s Finance Ministry did not immediately respond to a request for comment. The country’s banking association declined to comment.

In addition, the move will help identify gas stations that are buying stolen fuel by tracking their sales electronically. President Andres Manuel Lopez Obrador has made a crackdown on fuel theft from state-owned oil company Petroleos Mexicanos a cornerstone of his drive to root out widespread corruption.

For banks, the push for more cashless transactions, albeit without fees, could help expand client base and open opportunities to provide more Mexicans with cards, loans and mortgages. The CoDi system -- which relies on QR codes with mobile phones -- and a ban on gasoline and tolls, could increase digital payments tenfold, one of the sources said.

Only around two-fifths of Mexicans have bank accounts, World Bank data shows, and Mexico has the lowest tax take as a share of its economy among members of the Organization for Economic Co-operation and Development. AMLO, as the president is known, surprised Mexico’s bankers by embracing a cashless strategy which his predecessors had previously shunned. The ambitious project gels with his anti-graft campaign as well as a wish to to achieve greater financial inclusion in remote parts of the country of 125 million.

There are challenges, including poor connectivity for both mobile networks and internet service outside of major urban areas. With the need to give consumers time to prepare for a cash ban on goods like gasoline and highway tolls, the enforcement of such a policy may take some time.

Other areas that could be pushed into digital payments include public transportation, school tuition, electricity bills and passport fees. India instated an earlier broader cash ban in 2016 - one that prohibited high-denomination currency notes. While it didn’t weed out illicit cash use altogether, it did widen the country’s tax base and increase digital payments.

Bloomberg News
Digital payments Cash Mexico
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