Contxto – Last week, Mexico’s central bank (Banxico) proposed new cryptocurrency regulations in a series of online announcements. Experts now worry that the prospective jurisdiction could destroy the market, calling it a “misguided policy” worthy of reconsideration.
Basically, Banxico is looking to diminish – or prohibit – direct crypto transactions for consumers. Apparently, only certain companies will be able to use those assets for internal transferring purposes only.
The new circular, issued by Banxico, specifies that no cryptocurrency whatsoever should be offered to final consumers. This has, in turn, awaken some social media backlash from crypto-supporters.
Despite the new legislation to limit the use of crypto-assets, consumers could ultimately switch to foreign companies offering the same service, with no constriction. For this reason, some users believe Banxico’s efforts are ultimately useless.
What are the new stipulations?
If you’re part of a crypto-based business in Mexico, get ready to obtain all of the necessary permits. Certain requirements now require companies to provide detailed business plans and company profiles to legally operate.
As part of the new requisites, companies must also verify certain aspects of its operations. Some of these range from validating the business model, transaction fees, in addition to know-your-customer (KYC) security measures.
In other words, access to cryptocurrencies may become severely impeded with bureaucratic red tape.
What do experts have to say?
Jerry Brito and Peter Van Valkenburgh from advocacy group Coin Center called this move “draconian” in a recent op-ed. According to them, cryptocurrencies and banking system mutually depend on each other.
These individuals vehemently disapprove of the central bank’s crackdown on fintech legislation. Instead of opening Mexico up to innovation and holistic regulations, Banxico has virtually prohibited any and all regulated financial institution from transacting with cryptocurrencies.
In their opinion, Banxico’s recent maneuvers are “effectively putting the local crypto market to the sword.”
Cryptocurrency exchanges dealing in fiat currency need access to the local banking system. Under the new law, that access will be severely impeded. While the central bank can claim that they are not ‘banning’ exchanges, the effect will be the same.
Why do these new policies exist?
For all intents and purposes, these recent legal changes seem to be preventative measures against crypto-based money laundering. Such digital assets represent a lot of potential yet plagued with controversial reputations.
Banxico defended its firm stance against cryptocurrencies due to the industry’s volatility and complexity, not to mention the controversial track record of illegal activity.
For Mexico’s central bank, it seems as though the risks outweigh the benefits with crypto money. What’s more, I have the impression that Banxico believes crytocurrencies are too complicated for everyday consumers.
What’s expected to happen?
Policy opponents contend that Banxico will decimate Mexico’s crypto market with further divisions as well as mistrust between enterprises and the financial sector.
Certain experts also lament that Banxico’s reforms will “limit the use of cryptocurrencies to internal use only for banks and regulated FinTech companies.”
If crypto-related companies can’t earn the legal permission to operate, the fear is that most crypto exchanges will operate elsewhere. Moreover, this could theoretically hinder Mexico’s fintech development.
In that regard, some speculate that the Mexican government doesn’t want the general public to access bitcoins or cryptocurrencies at all.
Such a regulatory framework may not necessarily destroy the market, but it will most definitely create some roadblocks.
-JA
