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Mexico: Central Bank Issues Warning on Risks of Using Bitcoin

(Apr. 29, 2014) In March 2014, Mexico’s Central Bank (commonly abbreviated as Banxico) issued a statement explaining the risks of using Bitcoin and similar virtual assets. (Press Release, Banxico, Advertencias sobre el uso de activos virtuales como sucedáneos de los medios de pago en moneda de curso legal (Mar. 10, 2014).)

Banxico’s statement warned the public about the risks inherent in the acquisition of virtual assets, as they are very different from legal currencies for the following reasons:

• Virtual assets are not legal tender in Mexico, as Banxico neither issues nor backs them. Furthermore, virtual assets are not foreign currencies as there is no foreign monetary authority that issues or backs them.

• Virtual assets cannot fulfill payment obligations as businesses and individuals are not obligated to accept them.

• Banxico does not regulate or supervise virtual assets.

• Institutions regulated by the Mexican financial system are not authorized to use virtual assets or to perform transactions with them.

• In other countries, virtual assets are believed to have been used in illicit transactions, including fraud and money laundering.

• There is not any type of warranty or regulation that ensures that consumers or businesses that acquire virtual assets may recover their money. Since there is no identifiable organization that issues these assets or a third party that may respond to the obligations derived from them, no legal recourse exists to recoup losses stemming from their use.

• The price of virtual assets in Mexican pesos and in currencies of other countries has shown great volatility, which is due to their highly speculative nature. (Id.)

For these reasons, Banxico stated that the acquisition and use of virtual assets represent a high risk of depreciation and monetary loss. Therefore, any individual who acquires or accepts this type of asset in exchange for goods or services assumes all the risks listed above. (Id.)

Finally, the Central Bank stated that although virtual assets currently do not represent a major risk for Mexico’s financial system, Banxico will closely monitor their evolution and potential implications in collaboration with other authorities and will issue pertinent regulations if deemed necessary. (Id.)