Mexico’s Government Declares War on Cash

The war on cash transactions has been gaining traction among governments. Crisis stricken European countries as Italy, Spain and Greece have earlier initiated the curtailment in the use of cash. 

The Mexican government has joined this bandwagon by announcing a ban on “large” cash transactions supposedly to stem money laundering, most likely emanating from the drug war.

From the Washington Post 

Mexican President Felipe Calderon has signed into law a ban on large cash transactions as part of an effort to fight money laundering that experts estimate may amount to around $10 billion per year in Mexico.

The bill forbids buyers and sellers from giving or accepting cash payments of more than a half million pesos ($38,750) for real-estate purchases. It also forbids cash purchases of more than 200,000 pesos ($15,500) for automobiles or items like jewelry and lottery tickets.

It is kindda odd for governments to pin the blame on the public in the knowledge that for the top 10 lists of most corrupt government officials, many of them have been known to launder pelf acquired during their morally tainted regimes. 

In the financial world they are known as Politically Exposed Person (PEP), which according to Wikipedia.org, “describes a person who has been entrusted with a prominent public function, or an individual who is closely related to such a person” 

The Wikipedia.org also notes of the relationship between corruption and money laundering… (bold mine)

By virtue of their position and the influence that they may hold, a PEP generally presents a higher risk for potential involvement in bribery and corruption. Most financial institutions view such clients as potential compliance risks and perform enhanced monitoring of accounts that fall within this category….

PEP-specific compliance legislation underlines the link between corrupt politicians, money laundering and the financing of terrorism. Since September 11, 2001, more than 100 countries have changed their laws related to financial services regulation, with the fight against political corruption playing a fundamental role. Despite attempts at regulation, certain political leaders like Muammar Gaddafi and Hosni Mubarak have made news for having frozen assets located in US banks that did not follow these processes for these individuals.

So by virtue of the connection of corruption and laundering then Mexico cash ban should also implicate politicians. But this isn’t likely the real score.

In the understanding the politicians typically use noble sounding justifications to camouflage the genuine design to impose social controls, cash bans have mostly been about governments wanting to take control of the public’s savings in order to finance their profligacy.

Except for the quirk this 2012 in terms of government budget as % of GDP—perhaps due to initial reporting, but as of September Mexico’s debt will equal to 42.9% of GDP—generally speaking, Mexico’s fiscal position (mostly supported by oil revenues) has been in marked deterioration. (chart from tradingeconomics.com) 

With oil production falling from declining reserves, and where oil revenues account for 40% of Mexico's national budget…

…we now get a better picture or understanding of the seeming desperation exhibited by the Mexican government which impels them to corral public’s savings through currency restrictions.

Of course ban on cash would do little to control supposed “money laundering” which in reality represents an offshoot to corrupt arbitrary laws.

In the US, the war on drugs, for instance, has prompted drug trades to migrate to other marketable commodities as the Tide liquid detergents as means of payment. Instead of dealing with failure of the war on drugs, governments typically resort to attacking symptoms. This has been no less than political showmanship or the pretense of doing something. 

Economic and financial restrictions or blockade against Iran by the US has prompted Iran to use gold as money. So essentially, the US government has taken steps to underwrite the decline of the US dollar standard by incentivizing emerging markets to trade using other mediums as gold. 

As I previously wrote, 

As governments stifle people’s social and commercial activities through tyrannical laws, expect the use of more cash, local currencies or commodities (such as Tide) as alternative medium of exchanges, as the informal or shadow economies grow. 

Most importantly, real assets will become more valuable and may become an integral part of money, as sustained policies of inflationism, as Voltaire once said, will bring fiat money back to its intrinsic value—zero. 

The Mexican government’s war on cash will do little to help what truly has been the problem of political greed.