A few weeks ago, the CADECA exchange houses announced that the exchange of USD for Cuban pesos in the country’s airport terminals was temporarily suspended due to the limited availability of existing currencies to comply with the said provision, something understandable by almost everyone if one considers the fact of the drastic reduction in the inflow of foreign currency to the country motivated by the decrease in tourism, remittances and other income from external sources.
On Thursday night, June 10, the Central Bank of Cuba announced that as of the 21st of this month the commercial offices of the banking system and also the exchange houses, would not accept deposits in physical USDs, due to the difficulty of Cuban banks to be able to use those dollars in cash in international operations, something caused by the persecution that the United States Department of the Treasury has maintained over any commercial or financial operation that involves Cuba and that has increased exponentially since the Trump administration.
A contradictory situation
The truth is that a country that faces a strong balance of payments restriction, which has a negative impact on growth, the supply of goods, and the dynamics and magnitude of exports, which has a source of legitimate income in remittances and any other dollar from any other legal source, is deprived of being able to get more out of them due to extraterritorial impositions.
Those who have had to deal with the odyssey of carrying out a commercial transaction with Cuba are fully aware of the difficulties and the financial costs this entails.
Having foreign currency is a growing need for the national economy, among other things because the weakness of its productive system has made it increasingly dependent on imports, now increased by the pandemic and by the short-term consequences of an erroneous implementation of the task of reorganization, especially in the agricultural sector.
Remittances, together with foreign investment and income generated by exports, are one of the main sources of “liquidity” for the national economy and surely the first of all sources of “foreign exchange” for the country’s population. There are different estimates of the number of remittances, from $2 billion to $3.5 billion. In recent years these flows have decreased, but even so, remittances outperform practically all sectors of the national economy in terms of net income. There are no public figures on their weight as a proportion of GDP or investments, some estimates placed them close to 15% for the year 2017, other studies have affirmed that between 300 million and 600 million dollars annually of remittances go to investment in the private sector, something practically impossible to confirm. Most of the currency in which they are received are USD, and through informal channels.
Being one of the most important revenues in the country since the initial years of the 1990s, it is paradoxical that Cuba does not have a policy for the collection and use of remittances. Recommendations in this regard have existed for a long time. It is also true that in all these years in which we have been subjected to persecution by the Trump administration — and everything seems to indicate that it will continue with Biden — it has not been possible to innovate sufficiently in financial terms in order to find possible alternatives to that systematic attack when there is no guarantee that it will stop in the near future. For example, I will always wonder why there are no more electronic means of payment (debit cards, gift cards) issued by institutions outside the control of the U.S. government. Is it not possible? Companies with possibilities and decisions to make it safe exist.
Notwithstanding the foregoing, a group of actions with this purpose can also be identified in recent years. I list some of them:
- Elimination of the tax on the use of the physical USD
- Devaluation of the official exchange rate of the CUP against the CUC
- Reopening of retail trade in USD through debit cards
- Opening of supply stores in USD (debit cards) for the non-state sector
- Opening of freely convertible currency accounts to the entire population with access to foreign exchange.
- It stimulated online commerce, part of which is done in USD.
Commenting on the arguments for this measure would require, at least in my case, information and data that I do not have. What is undeniable is that the measures taken by the U.S. administration make it difficult for Cuba to place USDs in international financial and banking channels and raise the cost of any operation of this type.
The decision and its context
There are no public signs yet that the Biden-Harris administration will change anything substantive from what the Trump administration implemented. It has more relevant issues and in the end if it decides to negotiate one day it will arrive in a good position. Cuba is and will continue to be a bargaining chip for U.S. administrations, something we experience every four years.
Internally, our economy faces serious unresolved problems and even some that have increased after the “reorganization,” something that to some extent was also to be expected, given the magnitude of the devaluation.
Today it faces an inflationary process with very high dynamics, a CUP-USD exchange rate that has multiplied at least three times the value of the official rate, a black market in the physical and in the networks very difficult to control/reduce/eliminate with administrative and other measures, a supply deficit in all markets and in all currencies and permanent short-term debt to suppliers.
A fixed exchange rate and the passivity of monetary policy are also part of the reasons for the current situation.
What can be the expected effects?
Immediately the dollar exchange rate in the informal market has lowered its quotation from 70 and 72 CUP per USD to 50-55 CUP per USD. An effect expected, desired and sought-after by the Cuban monetary authorities. However, I do not think it possible to expect it to decrease to values close to the official rate. In the end, the physical USD, even if it has no “use value,” will continue to be a reserve of value and means of payment for all Cubans.
It is also possible to expect a reduction in the issuance of remittances in physical USDs as a direct effect of the measure and at the same time a growth in parcels sent from the United States, in the same way that although the difficulties are high, it is also possible to expect an increase in remittances via digital transfer.
However, the reduction in the turnover of the stores in foreign currency is foreseeable, at least in the short term, due to the reduction in demand due to the prohibition of recharging the cards in freely convertible currency with physical USDs as of June 21.
In the same way, the price of the “plastic dollar” (the cards in freely convertible currency) has risen and is likely to continue rising, which can generate a greater concentration of wealth, something very difficult to tax properly, since a part of this operation will take place outside of Cuba.
Regarding the non-exporting of the self-employed sector — practically everything, since in nine months only a little less than 100 export operations have been carried out —, its possibilities of resupplying in the short term are reduced, which can have a negative impact on supply, something not convenient at all.
The temporality of the measure, taking into account the reasons given, will not depend on actions that the Cuban authorities may take.
Nor does it seem possible to expect an increase in supply in any currency or in any market, one of the main causes of the growth of the informal exchange rate and the corresponding real devaluation of the Cuban peso.
And why if we have problems buying goods for our stores and improving the offer — due to the impossibility of placing our physical USDs in international financial channels — don’t we allow international chain stores to open establishments in Cuba? In this way, how many problems would we get rid of? In addition to charging those companies sales taxes, workers’ salaries, leasing of premises and getting rid of inventory, theft, custodians, uncertainty with our accounts, etc. and most importantly, improve the offer, in quantity, variety and prices, something so strategic and at the same time urgent; in these times when the pandemic, Trump+Biden, our unresolved structural failures and the errors in the “reorganization” have made it more difficult.
Until when are we going to be prisoners of our own “accustomed” minds?