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 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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