Private-Sector Retail Sales Lead to the Decline of Cuba’s Digital Currency

Cuba’s ’Freely Convertible Currency’ (MLC) Is Becoming Less Effective as a Tool for Extracting Hard Currency Remittances.

The MLC is a digital version of the convertible peso (CUC), issued by the Banco Metropolitano, Banco de Crédito y Comercio, and Banco Popular de Ahorro / 14ymedio

14ymedio bigger14ymedio, Miguel Alejandro Hayes, Miami, May 18, 2024 — After being suspended for several months, Western Union’s remittance service to Cuba resumed on May 9. The operation basically remains the same. Cubans living overseas will make deposits in U.S. dollars which recipients in Cuba will receive as “freely convertible currency” (MLC) via an ATM card.

It is worth remembering that the MLC is, in essence, a digital version of the now defunct convertible peso (CUC). It is the local currency into which three banks — Banco Metropolitano, Banco de Crédito y Comercio, and Banco Popular de Ahorro — convert remittance transfers.

That seems like good news but is it really? And for whom?

The MLC is essentially a mining operation masquerading as monetary policy, a way to insure that remittance transfers end up in state-owned banks. The more remittances Cubans living overseas send through Western Union, the more hard currency there will be in accounts at the aforementioned Cuban banks.

At the same time, earnings for the military-run business conglomerate GAESA are growing thanks to Fincimex, its financial investment and remittance company. Channeling foreign currencies through state banks is not conducive to secrecy, something on which GAESA relies to run its operations. Remittances could just as well move through the military’s continue reading

own banks such as the International Financial Bank (BFI) or directly through foreign banks. Fincimex has successfully promoted its own bank cards, which are not linked to state banks, as a way to tap into the remittance market. It has also announced alternatives to Western Union, specifically Tocopay and Vidaipay, as a means of sending dollars to Cuba. So the resumption of Western Union’s operations is not exactly great news for GAESA.

At the same time, the MLC subjects Cubans to economic kidnapping. This fake currency is only useful for purchasing goods sold through the network of military-owned hard currency stores, which are losing ground to SMEs,* privately owned shops and independent vendors.

On the other hand, if consumers have cash in the form of dollars, they can buy things directly from the private sector, exchange it at banks for MLC, or exchange it for Cuban pesos on the informal market.

This marked difference in practicality between the dollar and the MLC is reflected in the almost 100-peso difference in their respective exchange rates. To put it another way, the difference in value between 100 dollars and 100 MLC is almost equivalent to the price of three cartons of eggs [at 36 eggs per carton].

This suggests that, for those lucky enough to be getting remittances, it is currently much more advantageous to get them in the form of dollars rather than in MLC. So, though legal channels exist for transmitting remittances in MLC, there are more incentives to send dollars instead.

Similarly, if a segment of the Cuban diaspora — either through ignorance or for some other reason — starts remitting more MLC in the future, the supply of this currency on the informal market will grow. Then, due to the law of supply and demand, the MLC will depreciate, which will once again discourage its use because senders and receivers alike will prefer remittances to be in dollars, which have more value on the open market.

Going forward, it is highly unlikely that there will be a natural increase in the supply of consumer goods that someone can purchase with MLC

Going forward, it is highly unlikely that there will be a natural increase in the supply of consumer goods that someone can purchase with MLC. Its fate is tied to other factors.

The MLC is the most fictitious currency Cuba has ever had. It only exists and only has value because GAESA forces people to use it in order to buy things. The demand for it is artificial, its usefulness is limited. Why else would anyone want MLC other than to buy a specific random product at a GAESA store?

That is why the fate of the MLC as a currency depends on economic policy as it pertains to the supply of goods being sold for MLC. The more goods in quality and quantity that can be purchased with this currency, the more demand there will be for it.

On the other hand, the military and the government are facing a situation in which they have less ability to generate foreign reserves due to declining revenue, high costs and heavy debt burden. Therefore, all indications are that earnings from MLC stores will continue to decline, and with them the demand for their corresponding currency. Even so, the military has no other choice than to continue exploiting this tool and trying unsuccessfully to get the Cuban exile community to send more remittances.

The only question is how long the MLC will stick around. Cubans no longer need it to survive because SMEs offer a wider range of products, which consumers can purchase with pesos at the prevailing open-market exchange rate. The MLC will remain out there, following the pace of the economy, for as long as they decide to stick with it. More specifically, until they find another tool to extract hard currency. They are already experimenting with several.

*Translator’s note: English-language acronym for “small and medium-sized enterprise.”

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COLLABORATE WITH OUR WORKThe 14ymedio team is committed to practicing serious journalism that reflects Cuba’s reality in all its depth. Thank you for joining us on this long journey. We invite you to continue supporting us by becoming a member of 14ymedio now. Together we can continue transforming journalism in Cuba.

Why Are Cuba’s Provincial Governors Being Fired?

Though replacing provincial leaders is something that happens fairly regularly, the sheer number of party cadres who have been removed from office recently suggests that top military officials are concerned about something.

Susely Morfa, a diehard supporter of the regime, was removed as first-secretary of the Communist Party in Matanzas province in March / Radio Rebelde

14ymedio bigger14ymedio, Miguel Alejandro Hayes, Miami, May 2, 2024 — Something is going on up there. Over a dozen senior officials have been removed from office so far this year. Prominent on the list are party officials and governors in Havana, Santiago de Cuba, Matanzas, Holguín, Las Tunas and Cienfuegos.

The reason could be an issue common to each case that was of concern to the military leadership running the country. And considering that this elite group is motivated by money as well as the power to make even more money, one can surmise what interests the officials who were sacked may have been hindering.

The most important economic change that occurred in Cuba recently was the legalization of small businesses. Though these can be either private or state-owned, it is the former that predominate.

This change in the domestic economy has reduced economic centralization. Since they were legalized in 2021, small and medium-sized private businesses (MSMEs) have contracted with state agencies to purchase materials and resources, lease real estate, deliver goods and provide services. These formal business alliances come under the heading of Local Development Projects (PDLs). All of this is happening in a cooperative fashion, as public-private partnerships in which the “public” consists, to a large degree, of provincial governments and party officials. continue reading

MSMEs have gained greater economic importance and now play a larger strategic role in local life

Wealth creation, business financing and even foreign reserve earnings have been enhanced by the monetary flow between the private and public sectors. And it has happened without them necessarily having to rely on the country’s top leadership, much less on the military business community. As a result, MSMEs have gained greater economic importance and now play a larger strategic role in local life

That is why the creation of these new businesses, operating in conjunction with local power brokers, has led to a decentralization of decision-making authority in terms of state resources, creating new centers of power at the local level. In other words, economic decentralization.

The leaders of these new provincial fiefdoms are not about to change the system, however. And the cases of corruption that have come to light — the ones in Havana stand out due to the large number of them — are not an issue in and of themselves for a regime that promotes such practices as a means of individual survival.

The problem for the military elite is that the system only makes sense if they alone are in charge and do not feel threatened. Just because the private sector might be made up of trusted people, of people under their control, does not mean they will be allowed to get rich faster than the military business community itself. Party cadres will still be party cadres but they must not be allowed to become too important.

When it comes to power in Cuba, the thinking is that any form of decentralization is evil because it suggests a shift in the power dynamic, a relinquishing of decision-making to others, of allowing them to act unhindered by the establishment. And authoritarians always see self-autonomy as a threat.

That is why these actions by local officials suggest the beginnings of an economic counter-reformation. And though it is not an exact correlation, it so happens that the officials who were dismissed were from provinces where private-sector MSMEs and PDLs have had the greatest impact.

Unlike previous counter-reformations and purges that were purportedly aimed at rooting out corruption, this time the nation’s top leaders cannot afford to destroy the thing that is threatening them

In spite of everything, the private sector operates efficiently and effectively. In the domestic economy, it serves as a source of goods and services for consumers and provides something of a stimulus to the declining quality of life on the island.

Instead, the military can set limits on private MSMEs using the powers of the state. It can control them so that they do not shift the center of gravity yet take advantage of their results. To do this, they need the most trusted local officials, the ones who keep a low profile and do not have too many projects of their own. Officials with their own ambitions always pose a danger. That is why they are removed if they have to be removed.

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COLLABORATE WITH OUR WORKThe 14ymedio team is committed to practicing serious journalism that reflects Cuba’s reality in all its depth. Thank you for joining us on this long journey. We invite you to continue supporting us by becoming a member of 14ymedio now. Together we can continue transforming journalism in Cuba.