Mexico’s Primary Source of Cash on the Brink of Drying Up

One of the most often heard statements in recent weeks is how President Trump will continue his plans to build a wall between the US and Mexico. It appears these plans are being accelerated as we speak, as a new executive order has been issued on Wednesday. This specific order would oversee the construction of this wall between both countries, and force Mexico to pay for it. Moreover, Trump vowed to tax remittances until the wall has been paid for.

Bitcoin Can Save Mexico’s Remittances

The situation between the United States and Mexico is very tense right now. President Trump was not joking when he talked about building a physical wall between both countries, and Mexico is still expected to pay for it. This latter part of the “promise” has many people concerned right now, as there are multiple ways in which this could be enforced.

Either Mexico will pay for the wall directly, which seems extremely unlikely. It would not be in the country’s best interest to comply with this demand. Moreover, the Mexican economy has been plagued by instability and spending more money on things that do not benefit the national economy is not a priority right now. Then again, even if Mexico decides to not pay for the wall, Donald Trump will ensure it is not the average US citizen footing the bill.

To do so, he plans to introduce new taxes on remittance transfers from the US to Mexico. Using this method makes a lot of sense on paper, as it would allow the wall to be paid off gradually and passively. Unfortunately, that would also cripple the Mexican economy, as remittances are the country’s main source of cash. Mexico president is not in favor of either solution, as he feels the free flow of remittances must be assured at all times.

To put this into perspective, a total of USD$24. 6bn flowed from overseas Mexican residents to the Latin American country. That number dwarfs the Mexico’s income from oil exports, which were equal to US$23.2bn in 2015. Most of these transfers originate from the United States, which explains why this plan by President Trump is so dangerous to the Mexican economy.

The Mexican Peso is nearing its all-time low, and economic growth is nearly neglectable. According to the IMF, Mexican’s economic growth will continue to shrink throughout 2017. If Trump can execute his plan, that growth will be even smaller than originally projected. Dollars are a valuable commodity to Mexicans, but the main source of cash is on the brink of drying up entirely.

It remains to be seen how this situation will evolve, even though things are not looking good by any means. Mexicans continue to show an appreciation for assets that are not controlled by banks and governments. Bitcoin is the primary choice in this regard, as it can be spent globally without any issues. In fact, the LocalBitcoins volume in Mexico has been going up steadily over the past few years, with over US$1.8m peso being exchanged to Bitcoin last week.

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