No country had more to lose from Donald Trump’s presidential victory than Mexico, an economy that heavily relies on remittances from the United States. Mexico received $24 billion in remittances in 2015, the country’s largest source of currency after direct investment.
The Mexican government has been bracing for this blow and has taken steps to shore up its finances. The impending fallout should give the Mexican government reason to pay more attention to progressive cryptocurrency regulation, considering Mexicans working in the U.S. will have limited recourse for sending money back to Mexico.
If Trump goes through with his stated plans to clamp down on remittances, it's hard to imagine that bitcoin won't become a larger part of the Mexican economy.
A Moment Of Opportunity
The time is at hand for Mexico to take a serious look at the role bitcoin plays in its economy.
LocalBitoins, which facilitates over-the-counter trading of local currency for bitcoins, showed the weekly volume of bitcoin value in Mexican pesos progressively gaining through the end of October.
Mexico's National Commission for the Protection and Defense of Users of Financial Services in 2014 warned citizens that bitcoin is not a legal currency, is highly volatile and used in illicit activities, according to Global Legal Monitor.
Mexico now has an opportunity to establish itself as a leader in cryptocurrency regulation.
A blow to the country’s $24 billion remittance inflow could make Mexico one of the largest bitcoin markets, seeing how bitcoin represents a way to escape the controls Trump has said he will invoke on remittances to Mexico if the country refuses to pay for a wall. Workers can send bitcoin across borders more easily and cheaply than any other method.
'A National Emergency'
Trump's victory is "as close to a national emergency as Mexico has faced in many decades," Mexican analyst Alejandro Hope told the Associated Press.
In addition to clamping down on remittances, Trump plans to build a wall between the two countries, place 35% tariffs on U.S. imports from Mexico, and renegotiate the North American Free Trade Agreement, all of which could threaten millions of jobs on both sides of the U.S./Mexican border.
"We’re unlikely to see any significant changes in the short term," Daniel Vogel, president and co-founder of the Mexican exchange Bitso told CCN. "In the long term, we might see significant changes if an unfriendly atmosphere towards Mexican immigrants starts to grow."
If such policies were to emerge, we hope people will turn to technologies like bitcoin to lower their transaction costs and increase their access to basic financial services that every citizen in the world should have access to.
According to Trump’s campaign website, he plans to use the Patriot Act to require legal identification for people transferring funds outside the U.S. On the first day in office, he plans to amend the law to redefine “applicable financial institutions” to include money transfer companies like Western Union, and redefine “account” to include wire transfers. In addition, no alien will be allowed to wire money outside the U.S. without providing a document verifying legal presence in the U.S.
Trump Means Business
No one can mistake the seriousness of Trump’s intentions, as his immigration policies were a cornerstone of his campaign. With such a law in place, some money transmitters choose to exit the remittance business altogether.
Trump thinks clamping down on remittances will force Mexico to agree to pay for the wall.
According to his position paper on compelling Mexico to pay for the wall, Trump said the $24 billion a year in remittances from Mexican nationals “serves as de facto welfare for poor families in Mexico. There is no significant social safety net provided by the state in Mexico.”
If the Mexican government agrees to pay for the wall, Trump wrote that he will not promulgate the rule.
The remittance clampdown, meanwhile, will impact the disadvantaged the most, as they are the primary remittance recipients. Armen Gulesserian, blogging on Bitso, estimated 90% of remittances are used for basic necessities.
In this scenario, it is hard to imagine Mexican workers in the U.S. not turning to bitcoin.
Bitcoin Has Proven Its Use
Gulesserian points to the precedent set by Wikileaks and Uber Argentina.
Wikileaks took donations in bitcoin when banks, credit cards and Western Union tried to block payments. When Argentina’s government prohibited credit card companies from doing business with Uber, Xapo, a bitcoin wallet, allowed Uber drivers to accept Xapo card payments.
Bitcoin and mobile messaging have already emerged as tools in addressing the global remittance market to lower the cost of transferring funds across national borders.
With bitcoin, senders pay for transactions in local currency, then the facilitator converts the cash to bitcoins before sending it. After the bitcoin arrives at its destination, the facilitator converts it into local currency. The company that facilitates this exchange takes a cut, similar to a traditional facilitator. Neither customer necessarily knows bitcoins were involved.
New bitcoin remittance players have emerged in the last two years: Abra, Robocoin Romit, Volabit, Sentbe, SCI and Payphil, while better-established bitcoin exchanges such as Coinplug and Korbit are entering the field.
What Will Mexico Do?
What Mexico plans to do in response to Trump is uncertain. The Mexican government followed the U.S. election from the beginning and has reportedly made contingency plans for a financial fallout.
The immediate concern is the falling peso. The peso lost 7.8% to trade at 19.79 to the dollar, compared to 18.34 late Tuesday, according to MarketWatch. Throughout the U.S. presidential race, the peso performed in inverse correlation with Trump's perceived chances of winning, according to Reuters.
The Bank of Mexico has already increased rates by 150bp so far this year, according to Fitch Ratings, including a 50bp increase in September. The authorities have also increased its two-year IMF Flexible Credit Line by around USD21bn to USD88bn to provide a buffer against disorderly capital outflows and severe market volatility.
Fitch Ratings said Trump's victory could add downside risks to Mexico's economic growth, while Moody's warned that its government may not meet its goals of cutting its budget deficit if flows of trade or foreign investment wilt under Trump.
"I think at this point we’re all just watching him closely and hoping for the best," Vogel said.
Mexico’s government should seize the opportunity to show the world how governments can responsibly regulate cryptocurrency.
Images from Shutterstock.