Introduction to the New Coins
Mexico’s Casa de Moneda (CMM) and Banco de México (Banxico) are preparing to produce new 1, 2, and 5 peso coins made from steel cores coated with bronze. This change aims to replace the current bronze-aluminum alloy, making production more cost-effective and environmentally friendly. This initiative comes as the federal government seeks to reduce cash usage in the country.
Current Cash Demand and Digitalization Trends
Approximately 3.3 trillion pesos in bills and coins circulate daily in Mexico, a 200% increase over the past decade. Despite growing financial digitalization, cash demand remains high. The new coins will join other countries using steel-coated materials, such as the Royal Canadian Mint, the European Central Bank, and national central banks in the Eurozone.
- Cost Reduction: The steel-coated bronze coins will decrease production costs by 300 to 400 million pesos, mainly due to lower metal acquisition expenses.
- Economy Circular Support: Implementing these innovative solutions supports a circular economy, reduces carbon footprint, and promotes responsible supply chain practices.
- ESG Criteria: The focus on Environmental, Social, and Governance (ESG) criteria aims to invest in solutions that decrease carbon footprint, minimize water usage and waste, and reduce environmental impact.
Future of Cash Usage
Although electronic transactions are projected to triple globally by 2030, accounting for over 3 trillion transactions and a 61% growth, cash is expected to remain the primary payment method in retail transactions, especially in developing economies with high vulnerable populations, limited financial infrastructure, and low financial penetration.
In Mexico, cash demand is anticipated to grow due to reasons like safety concerns, expanding informal economy, increased remittances from the US, and low financial penetration (only 49% of adults have bank accounts).
Government’s Digitalization Initiative
On October 9, the head of the executive announced that the government will propose a strategy to advance digital payments in Mexico, aiming to reduce cash usage. The plan intends to be inclusive, ensuring all citizens have access without barriers like internet availability.
Successful models in Brazil and India will strengthen payment security and promote economic formality. Mexico already has digital payment applications like Cobro Digital (CoDi) and Dinero Móvil (Dimo), but they haven’t gained widespread adoption due to lack of promotion and charges.
Cash Dominance in Mexico
According to the National Financial Inclusion Survey (ENIF), 73.5% of Mexicans use cash for transactions over 500 pesos, rising to 85.2% for amounts under that threshold.
Key Questions and Answers
- What are the new coins made of? The new 1, 2, and 5 peso coins will be made from steel cores coated with bronze.
- Why are these changes being made? The changes aim to reduce production costs and promote environmental sustainability.
- How will this affect cash usage in Mexico? Despite growing digitalization, cash remains dominant in Mexico, especially for retail transactions. The government’s digitalization initiative aims to change this.
- What is the government’s strategy for reducing cash usage? The government plans to promote an inclusive digital payment system, ensuring all citizens can access it without barriers.
- Why hasn’t digital payment adoption taken off in Mexico? Existing digital payment applications like CoDi and Dimo haven’t gained widespread usage due to lack of promotion and charges.
