MEXICO MUST END CASH DEPENDENCE / PROJECT SYNDICATE

Mexico Must End Cash Dependence

Mexico’s cash-heavy economy leaves it vulnerable to tax evasion, corruption, and money laundering. By emulating successful electronic-payment platforms in emerging markets like Brazil and India, policymakers could foster financial inclusion, boost government revenues, and stabilize public finances.

Guillermo Ortiz

MEXICO CITY – As President Claudia Sheinbaum marks one year in office, Mexico’s finance ministry has released its year-end public finance estimates, along with preliminary projections for the 2026 budget. 

Encouragingly, the country’s fiscal deficit – which election-related spending had pushed to 6% of GDP in 2024 – declined to 4.3% in 2025.

The deficit is set to shrink marginally next year, easing fears of a credit-rating downgrade. 

While economic growth is expected to remain sluggish, the debt-to-GDP ratio is projected to hold steady at 52%. 

Consequently, S&P affirmed Mexico’s investment-grade BBB rating with a stable outlook.

But Sheinbaum should be aware that deeper structural challenges remain, particularly low revenues and widespread tax evasion. 

The government has decided to delay a comprehensive fiscal reform – a sensible move given the uncertainty surrounding the future of the United States-Mexico-Canada Agreement and the fallout from US tariff hikes, though the delay will have significant implications for public finances in 2026 and beyond.

Official figures illustrate the extent of the problem. 

Social transfers have tripled over the past six years, and social spending now accounts for nearly half of public expenditures – with about one-quarter tied to programs introduced under Sheinbaum’s predecessor, Andrés Manuel López Obrador (AMLO) – while public investment is at a multi-year low. 

At the same time, tax evasion is estimated to cost the government 20% of potential tax revenue.

With evasion so prevalent, Mexico’s tax revenues are among the lowest in Latin America, underscoring the need for the fiscal overhaul that authorities have now postponed. 

Still, reforming the payment system could help address some of the country’s most persistent challenges by improving tax collection, curbing money laundering, and promoting financial inclusion.

In 2024, only 63% of adults had a savings account, and just 33% used digital-payment platforms. 

Roughly 85% of adults relied on cash as their primary means of paying for small, in-person purchases. 

Cash in circulation amounted to about 10% of GDP – more than double its 2014 level and the highest in the region.

This reliance on cash reflects Mexico’s large informal economy, which provides fertile ground for tax evasion, corruption, and organized crime. 

Unsurprisingly, studies show that the extraordinary rise in cash use, particularly high-denomination banknotes, stems from money laundering, fueled by the rapid growth of organized crime during AMLO’s presidency.

The proliferation of organized crime has, in turn, prompted Sheinbaum’s government to strengthen cooperation with US President Donald Trump’s administration on migration control and drug enforcement. 

As a result, illegal crossings at the US-Mexico border have fallen by 94% since their 2023 peak, while a new security agreement has led Mexico to extradite dozens of convicted gang members to the US.

Banco de México (Banxico, the central bank) has long sought to modernize the payments system. 

In 2004, it launched SPEI, a pioneering wholesale electronic payments platform – one of the first of its kind in the developing world – which was soon expanded to real-time retail transactions. 

Seeking to broaden access, Banxico introduced two additional retail-payment platforms: CoDi in 2019 and DiMo in 2023. 

Both, however, have struggled to achieve widespread adoption.

Even so, these systems have delivered tangible benefits. 

Interbank transfers rose from about 1.5 million in the first quarter of 2004 to more than 416 million in the first quarter of 2025. 

Yet, despite this nearly 28,000% growth, instant payments remain underused and could be leveraged more effectively to address Mexico’s structural challenges.

Other emerging markets offer helpful models. 

In 2020, Brazil’s central bank launched Pix, a national instant-payment scheme that enables seamless money transfers between individuals, businesses, and government entities. 

Rather than requiring users to download a dedicated app, financial institutions have integrated Pix directly into their platforms.

Transfers are routed via Pix “keys” – mobile number, email address, taxpayer ID, or a random code – eliminating the need to enter an account number and making the system widely accessible. 

End-to-end encryption, real-time fraud monitoring, and multi-factor authentication protect users’ privacy and security.

By offering a fast, safe, and simple way to make everyday payments – from retail purchases to rent – Pix has become an integral part of daily life. 

With virtually all financial institutions required by law to participate, more than 150 million people – almost all of Brazil’s adult population – regularly use it.

The impact on financial inclusion has been striking. 

By 2023, more than 87% of Brazilians had an account with a financial institution, up from 77% in 2019. 

Over the same period, cash usage declined sharply, from 76.6% to 40.5%, while Pix surged in popularity. 

It now accounts for 43% of all cashless transactions.

Another example is India Stack. 

This initiative, which links the Aadhaar biometric identification system, the government’s Jan Dhan financial-inclusion program, and the UPI instant-payment platform, enables people to open accounts within minutes and pay by phone or QR code. 

The numbers speak for themselves: account ownership rose from about 35% to nearly 90% in a decade, onboarding costs fell dramatically, and UPI now processes tens of billions of payments each month – even in rural areas.

There is also evidence that tax compliance has improved both in Brazil and India.

To achieve similar results, Mexico must upgrade its SPEI and DiMo systems by adapting the most effective elements of Pix and other emerging-market platforms to local realities. 

A phased program offering a simple and reliable way to make everyday transactions – supported by common identifiers such as phone numbers or emails, robust security protocols, and clear dispute-resolution mechanisms – could gradually reduce cash dependence, expand access to formal finance, and improve enforcement, thereby strengthening public finances and helping to ensure fiscal stability.

Guillermo Ortiz, a former finance minister of Mexico and governor of Banco de Mexico, is Co-Chair of the G30 Working Group on Latin America.