14ymedio, Madrid, 11 April 2023 — There has been another sudden change of course in economic policy. As of Tuesday, Cuban banks will once again be accepting dollars in the form of cash. News of the Central Bank’s decision was published in the Official Gazette a few hours earlier. Independent experts worry that the new policy, which takes effect immediately, could lead to higher inflation.
This action overturns a June 2021 resolution that prohibited banks and other Cuban financial institutions from accepting cash deposits in U.S. dollars. The previous policy was initially intended to be a temporary measure but, in the intervening two years, the black-market currency exchange rate reached as high as of 200 pesos to the dollar before settling down to a level between 160 and 180 pesos. Meanwhile, the official exchange rate for individuals went from 24 to 120 pesos.
The Central Bank’s action is attributed to a change in the “current circumstances and priorities of economic policy.” Things have changed since then. The country is past the worst phase of the pandemic, when the measure was introduced, tourism and industrial production have improved slightly and, most importantly, Western Union resumed wiring remittances to the island in early March after the Trump administration had suspended the company’s operations in Cuba in 2020.
The bank defends its decision “even though pressures from harsh sanctions related to the economic blockade remain in force, particularly those intended to impede Cuba’s foreign cash flow and U.S. dollar deposits overseas.”
The bank’s announcement mentions “the exchange market established in August 2022, a reference to the exchange rate of 120 pesos to the dollar for individuals. The exchange rate of 24 pesos to the dollar for companies remains unchanged. That decision did not have the intended effect. The government had been hoping to capture some ot the dollars circulating in the informal market at a rate that was rapidly climbing and about to reach 200 pesos to the dollar.
Although the announcement claims that the “confidence generated by this step will be beneficial for national economic activity and for the population,” it adds a plot twist: warning that given that the underlying problem — the U.S. trade embargo – has not been resolved, “it will be necessary to monitor the evolution of banking and financial activity.”
Madrid-based Cuban economist Elías Amor notes that the most obvious potential consequence of this action is that it could threaten the revolution’s stated commitment to social justice.
“From this moment on, Cubans with family members overseas need only collect money in the form of remittances from a wire transfer company, or informally from foreign toursits, to enjoy a higher quality of life, and more spending opportunities, than those who only receive their income in the form of Cuban pesos. And no matter how you look at that, this is inflationary,” he writes in his blog, Cubaeconomía.
The expert admits that these anomalies existed before, but that they will now become visible. He is sorry to see the 2021 currency unification measures being questioned again without anything happening. He also warns of the risks of this decision in a climate of runaway inflation that is approaching 70% annually in some essential sectors such as food.
Also pointing the finger at currency unification is economist Pedro Monreal. In his Twitter account he mocks the governments policy lurches. “Luckily they studied monetary unification for ten years,” he writes, describing the measure as a “laundering” of the black market exchange, which led to “partial dollarization resulting from an increasing use of the dollar in private transactions.”
This decision has not gone unnoticed by news consumers, who have inundated government media outlets with comments. Many ask critics not to question decisions by the government which, in their opinion, is trying to deal with a very complicated economic situation. For this alone, they argue, we should be thankful for any action officials take, no matter how misdirected it might be. But a significant number of readers stress that the dollar deposits should never have been banned in the first place, as evidenced by this about-face.
“Dollar deposits should never have been prohibited in the first place but, at this point, the decision creates problems. First, the official exchange rate is much lower than the unofficial rate. Seondly, people have recently needed to withdraw dollars from the bank but this hasn’t been possible because the bank itself doesn’t have them. Consequently, this leads to a loss of confidence among bank customers. Lastly, dollars are in high demand from privately owned companies, which need them to pay for imports. But the banks don’t have them, which forces [customers] to look for them in other markets,” reads one post.
This loss of confidence is echoed in other posts. “A serious question borne of personal experience: What guarantee do individuals who have made dollar deposits have that tomorrow they will be able withdraw that money from their bank accounts if ’conditions’ change?” asks one commenter whose doubts are quickly echoed by someone else: “That’s the real question. And what if they change their minds? The dollar has been an erratic presence in Cuba’s economic landscape in an unstable, illegal way. They gave it the okay, then later it was no cash. Now it’s being welcomed again. In my opinion, this is not a measure that will build confidence. Changing course abruptly is not the way to stabilize the economy.”
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