EconomyBanxico goes against the tide in its opposition to...

Banxico goes against the tide in its opposition to cryptocurrencies

The Bank of Mexico (Banxico) is targeting cryptocurrencies, whether they are bitcoin, ether or stablecoins.

The name is the least of it, but since Monday, financial authorities – including the Central Bank and the Ministry of Finance – pointed out that commercial banks are prohibited from offering cryptocurrency operations.

The ‘clarification’ came a day after the owner of suggesting that his financial institution prepares to trade bitcoins. Banxico was categorical: to celebrate or offer operations with virtual assets to the public ”. He also warned that digital currencies or stablecoins should not be considered as a bargaining chip.

“Banxico has to go out and take care of it and make an announcement with the investing public that they cannot be completely trusted as if it were already a currency,” explains Ramsé Gutiérrez, senior vice president and co-director of investments at Franklin Templeton Mexico. “In recent weeks , there have been a couple of stablecoins in the United States that have been victims of electronic fraud or cyber attacks, with everything and that were tied to the dollar.

What are stablecoins?

The so-called ‘stable currencies’ or stablecoins are digital assets linked to values such as the dollar or the peso, and that for this reason they seek to avoid the volatility (wide variations in their price) of cryptocurrencies such as bitcoin. The most used are the Tether, linked to the dollar, and the EURO Stasis, to the euro.

“The idea of a stablecoin is to try to give certainty about the value of cryptocurrencies. But this certainty is not yet something that is ready for you to substitute for pesos or dollars. It is an investment project ”, highlights Gutiérrez.

Today, many cryptocurrencies cannot yet be purchased with dollars, euros, or pesos. Many platforms require an intermediate currency, and that’s where stablecoins like tether come into play.

Its operation is based on the blockchain. And what is the blockchain? Let’s take an example. Imagine that the Internet is a schoolyard. There, the children exchange stamps, food or toys, but all transactions are carried out under the control of the teacher (a bank), who takes a commission. One day, the children decide to ‘decentralize’ their exchanges, and create a common and transparent account book. This book is made up of identical blocks or nodes, where the information of the exchanges is automatically updated, and each child has access to one of them. They cannot be tampered with or falsified, and there is no longer a need for a central authority. Hence, by their nature, they arouse the suspicion of central banks.

Simplifying, the blockchain is a public, transparent, secure database that is in the hands of all users who want to use it to exchange information, goods or services.

Similarly, stablecoins are widely traceable digital accounting systems with financial backing, as they are tied to another currency, says Salvador Vidal, president of the fintech Snowball.

In order for stablecoins to be backed by an asset, money must first be deposited into a bank account and entered into a ‘smart’ contract, which is basically a self-executing electronic program, usually without intermediaries, in which functions are assigned. “You put your own conditions and rules of the game. You can say that for each peso a token must be generated, which will be swarming in the digital world, and for each peso that is extracted from the bank, the token disappears ”, says Cipactli Jimenez, a private investor.

On June 17, in Mexico, MMXN was launched, the first stablecoin backed by the peso, and which in an initial stage allows users to buy other cryptocurrencies. The plans include sending remittances and commercial operations. This last project has a stone in the way: the authorization of Banxico.

The Central Bank’s distrust of cryptocurrencies has been based on the possibility of fraud, such as the one that occurred in the United States with Tether, used for more than half of bitcoin operations. On that occasion, the tokens disappeared and investors lost their money. The New York Prosecutor’s Office has vetoed operations with this currency.

In spite of everything, Ramsé Gutiérrez, the Franklin Templeton expert, believes that financial authorities will eventually have to recognize cryptocurrencies, although he rules out this happening in the short term. “It is a technology that is definitely here to stay. There are developed countries whose central banks are doing development in order to take advantage of the security of this type of technology, but it is not something that is already coined by any developed country, ”says Gutiérrez.

Jiménez, the private investor, considers that stablecoins can function as an inverse instrument to the value of bitcoin or another cryptocurrency, and adds that Banco de México should learn more about and analyze use cases, as well as international experiences. “JP Morgan has been using in-house stables for two years to do very large volume transfers.”

Other banks with international experience in cryptocurrencies is Santander, which has used Ripple’s technology to make transactions for more than three years. BBVA also has a platform to buy other cryptocurrencies.

“It is not how to use bitcoin, but how to use the technology that sustains cryptos so that it benefits us in financial terms, even fiscal,” says Jiménez.

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