Elías Amor Bravo, Economist, August 4, 2023 — Who benefits from the ’bankification’ of the Cuban economy? This question has been going around since the Regime, using an entity at its service, the Central Bank of Cuba, has announced measures that aim to reduce the circulation of cash and get economic actors to use electronic banking services more.
To do this, published in the Official Gazette No. 55 Extraordinary of August 2, 2023, is a resolution that establishes the banking rules relating to limits for collections and cash payments in national currency, their deposit, extraction and possession, and other issues that should not go unnoticed. One of them is the possible threat of confiscation to those who do not comply with the provisions of the rule. The other is the authorization to withdraw cash from ATMs, but only for certain very specific needs, such as salaries, savings accounts, pensions and other personal expenses.
The rest of the resolution is pure heavy artillery from the Central Bank of Cuba, it says, to favor the process of bankification in the country. And even though it is emphasized that the objective is, in principle, to “maintain equality for all the actors of the national economy,” the truth is that the measures adopted have clear asymmetric effects depending on the size or sector of specialization of the economic actors, among others. So it can be expected that problems will appear in applying the new rules, and that the eventual rearrangement of banking flows will not be achieved either.
The Regime points out in the preamble to the resolution that the increase in the use of cash in economic and financial transactions since 2021 has caused a decline in the levels of banking and financial inclusion in the country. Some reflection should lead to an initial conclusion: the entity responsible for that monetary expansion is the Regime itself, with its unbridled public spending, and not the economic actors to whom it is unfairly going to apply the adjustment.
Therefore, it should be the Regime that sets an example and acts to correct the high costs associated with the issuance, transport, processing and storage of money. In fact, the growing demand for money in a number of ATMs for cash extraction is the direct result of the rampant inflation that exists in the economy and that forces those multiple cash withdrawals in order to face spiraling prices.
The communist Regime creates the problems but applies the adjustment measures to others. Just like that. The increase in the bankification of financial operations, through electronic payment channels, is not intended to improve the service for economic actors nor to meet their growing cash needs. It only makes the adjustment of monetary control fall on the weakest part and conveys a message: here you obey, always, and at any price.
The resolution puts pressure on all economic actors, from State enterprises; senior business management organizations; budgeted units; non-agricultural cooperatives; agricultural cooperatives; agricultural producers; individual small farmers; commercial fishermen; micro, small and medium-sized enterprises [MSMEs]; local development projects; self-employed workers; artists and creators; the modalities of foreign investment and the associative forms created under the protection of the Law of Associations. No one escapes.
Likewise, it is applicable to natural or legal persons not covered by the above, if they carry out legally authorized commercial and service activities. That is, MSMEs are also a target of the measures, in case anyone had any doubts about the coercive action.
The Regime has been in a rush to boost electronic banking operations. Despite the low or no degree of development of these, because Cubans use cash for most transactions in the formal and informal economy, the Central Bank wants this process to be based, as soon as possible, on the digitization of the operations of the banking system within its process of technological modernization.
The communist leaders are convinced that the provision published in the Gazette will accelerate the process of bankification of operations, among them, all the collection and payment relationships of the economic actors that are based on the bank’s payment methods and should be the basis of electronic transactions. They are wrong. It is the eternal obsessive mania of Castroism that an economy can function through the publication of rules in an official gazette. A misconception. The normal thing is to observe what happens in reality, and if it has to be regulated, do it by interfering in the least possible way in those processes. Just the opposite of Castroism, which has been believing for 64 years that an economy can be controlled and directed.
In the face of the disaster of the country’s ATM network, a service that the leaders recognize is not efficient, it is established that the teams will only dispense cash for the debit cards of natural persons associated with salary, savings accounts, pensions and other personal assets. That is, the same exceptional assumptions. The control will be maximum. They warn that if a card of another type is detected, it will be returned and the customer must go to a bank branch.
Shops that offer the sale of goods and services must incorporate the possibility of electronic payment channels, either through the Transfermóvil, EnZona gateways or the Sales Terminal Points. Let’s see how many warehouses in the standard basket incorporate these digital processes for payment. In the face of the growing alarm of the population, the authorities have been forced to declare that cash will not cease to exist, but that the use of electronic payment is promoted, and the “revolutionary principle” insists that no one will be left helpless in the knowledge that not everyone can access these mechanisms.
In the market economy, this type of initiative is usually accompanied by incentives or gifts to users to mobilize and reward their behavior change. Not in Castroism. It insists only that, since they are safer and faster operations, “they must also be a benefit for the population, so they are being studied to continue advancing in the levels of profits, which are issued by banks, a work that is also in conjunction with businesses.” Profits for whom and for what?
In fact, plastic money in Cuba is far behind other countries. The average is 1.4 cards per inhabitant, and in other countries, such as the Dominican Republic, the average is 4.5. This indicates that operations with electronic means do not exceed 200 million per year, a level that is considered low for the level of transactions of the economy as a whole. Behind this deficient result is the low confidence of Cubans in the banking system, where they have had terrible experiences, and its limited attractiveness for the promotion of savings and the sale of investment services, such as mortgages or pension plans, which are prohibited by the communist Regime.
And the truth is that, although the leaders declare that Cuba is governed in its banking practices by international standards and participates in all agreements and conventions, the reality is that there is a long way from saying it to the facts. For example, banking is all state-owned, and the banks are at the service of the Regime, in compliance with an alleged principle of legality, which tends to be blurred in certain contexts and operations. There is no competition between the banks, and they all follow similar procedures. Customer service leaves a lot to be desired. For example, the reading of the ruling of the London court denounced the strange Cuban banking operation. The judge’s ruling made it known that Cuba’s responsibility in the efforts made in the investment of international debt leaves much to be desired.
On the other hand, it is surprising that the deadlines for applying the rule are unnecessarily shortened. It is true that when the conditions are not created, the rule recognizes a period of up to 6 months for cash withdrawals to continue to be made in Cuban pesos to make payments to workers for salaries, premiums, gratuities and other remunerations, as long as you do not have a resident employee payroll. This very short period will lead some actors to prefer other informal channels. The same goes for the maximum limit of 5,000 Cuban pesos per operation for cash collections and payments, a figure that seems to be pulled out of a hat without too much analysis. In fact, it is pointed out that if these operations exceed the figure of 5,000 Cuban pesos, they must be carried out through payment instruments and credit securities other than cash, especially through electronic payment channels.
In addition, the cash income in Cuban pesos received by the subjects of the resolution, as a rule, is deposited in their current accounts no later than the next bank business day from the date of receipt. In the case of non-State forms of management, the deposit made in the account is recognized for tax purposes, while cash withdrawals for the payment of salaries, subsidies and other social security benefits and student loans are made, at the most, three working days before the date established for payment. These deadlines are not understood and do nothing but increase the logical distrust of Cubans in the banks.
Some economic actors have felt trapped in a crude financial “corral” at the wrong time. The financial situation of the Regime must be bad, very bad so that, overnight, under darkness and with treachery, the authorities gave an unexpected turn to their banking system, and the consequences can be dire for the economy.
And to make it clear that this issue is being taken seriously, the communist rule warns the presidents of banks, or the persons to whom they delegate authority in writing, not to suspend banking services or close customers’ accounts, “and to comply with the provisions of the Third and Fourth sections of this Resolution.” These exceptional measures go too far and create a logical alarm, concern and uncertainty among economic actors. Once again, arbitrariness is at the center of decisions in Castroism: the concept of “a repeated rule,” which is not adequately defined and raises many doubts about what it means, how many times and in what way.
Which means it’s not a joke. The resolution launches a full-blown threat. You must necessarily comply with what it establishes, no matter how irrational and inefficient it may be. Otherwise, be willing to lose all the money you have in the bank. It should be noted here that this is a case of confiscation of property outside the provisions of the 2019 communist constitution and the 2022 expropriations law. Where is the public utility or the social interest in these maneuvers of suspension or closure of banking services by the authorities? Castroism is showing its worst face once again. Bankification ends up being economic repression.
Translated by Regina Anavy
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