Cuba: Putting Out Fire with Gasoline

The damage will be irreparable. Time is running out, people are exhausted, they give up, they quit.

By Oscar Fernandez (Progreso Weekly)

HAVANA TIMES – Increasing the levels of banking access is essential for our economy, but Resolution 111 that Cuba’s Central Bank (BCC) has just released is suicidal. Attempting to apply what this regulation dictates at this time is going to mean a devastating blow for everyone: pensioners, workers, small owners, students, the unemployed, remittances, everyone.

The lack of cash in banking institutions is undeniable and it is true that private businesses still have very low levels of access to banking services, which makes the situation extremely complex. But there are other aspects not addressed that also appear as causes behind the shortage of cash.

  1. In January 2023, when the public operated their digital transactions with relative confidence, the BCC imposed a restriction on transfers between natural persons set at 120,000 CUPs per month. The intention seemed to be to limit operations related to the informal currency market, which moved large amounts in each operation. The result was the un-banking of all these operations, which were pushed into the cash economy.
  2. In a process of galloping inflation like ours, more and more money is demanded to access the same goods. If, under conditions of low bank use, the Central Bank does not increase the denomination of the banknotes, it will obviously have to put more banknotes into circulation to carry out the same operations, with the consequent increase in costs that this entails. In countries of the region such as Uruguay, Brazil, Chile, Mexico and Colombia, the highest denomination bill is equivalent to between $23 USD and $59 USD. In Cuba, calculating at the informal market rate, this equivalence is around $4 USD. We would need a 5 thousand and 10 thousand CUP bill to facilitate economic operations.
  3. The development of the informal exchange market and the continuous depreciation experienced by the peso, whether as a result of real variables or organized attacks, is the entire responsibility of the government, which should long ago have taken over the reins of the exchange market by buying and selling currencies at the market rate.

The direct and immediate consequences of adopting this measure are very easy to predict.

  • Bank branches will be overwhelmed when thousands of operating SMEs join the daily services they offer today, making deposits or requesting withdrawals.
  • There will be a severe reduction in the supply of private imports (the cancellation of contracted containers has already begun) when it is impossible to close the cycle, given the absence of a “banked” exchange market. The prices of products that had begun to fall will be unbridled again, national productions, that had some imported component provided by the private sector, will be affected, and productive chains that benefited the state sector will be affected. And so, after the so-called multiplier effect, the stagflation in which we find ourselves will worsen with greater impacts for those with lower incomes.

It is essential to highlight that imports from the private sector are not bought only by “solvent” people. The chicken, the oil and the detergent are purchased by many people who are far from being in a high income percentile, who find in this private offering a better alternative to the black market, both in price and security, and often cheaper than the offer of the MLC stores. On the other hand, when the private supply of chicken disappears, people with higher incomes will generate a demand that will be satisfied by the chicken of the poor. And they will divert and buy the chicken of the poor. It’s as simple as that.

  • There will be an impact on employment and the stability of many families, given that numerous private enterprises (not only those who sell imported products) will close or be severely affected, and others with the idea of starting a business will abort it.
  • There will be an expansion of informal markets and a deepening of the dollarization process in them. Banking will put a strain on the circulation of cash in cup, but it will not reduce the cash economy. The dollar will assume that function. Financial digitization is not going to get the Cuban peso to recover its monetary functions, on the contrary, let’s dismiss the CUP as a unit of account and as a means of hoarding. And to top it off, let’s welcome a new informal cash market.

Nobody should dare move even a single variable that threatens to reduce the supply in this country by one gram. Like many economists, Minister Gil had affirmed it on several occasions. Well, the Central Bank has ignored this alert.

The autocratic decision-making method that the government demonstrates with this announcement is incomprehensible and very discouraging. If you want to talk about socialist democracy, I see no justification for a measure of this scope not being presented in the National Assembly the previous week.

Those who decided to impose this norm under the current circumstances, without considering these and other consequences, make the same mistake as those who imposed the Ordinance. A necessary policy, but applied in the wrong sequence and under the wrong conditions, produces a result very different from the one it claims to pursue. Seems like a repeating pattern. The damage will be irreparable. Time is running out, people are exhausted, they give up, they quit.

With decrees like this — the infamous US blockade does not have to devise new ways that generate suffocating restrictions on us — their work is made easier. Recognizing that it is a mistake to apply this rule in the current circumstances, and rethinking a different strategy to increase the use of banking services in the economy and to alleviate the cash shortage, is what is appropriate now. We must turn back now, although it is probably too late!


Oscar Fernández, an economist and professor, published this opinion on his Facebook profile from which we took it with his permission.

Read more from Cuba here on Havana Times

5 thoughts on “Cuba: Putting Out Fire with Gasoline

  • Yes indeedy, why is the Cuban Revolution still on its feet? Moses and Olga scratch their heads and wonder. As Moses alludes, it’s not because of brutal repression by state security (like is or was the norm with US satellites). Could it be that most ordinary Cubans realize that a good portion of their hardship is intentionally caused by the plethora of US sanctions? Could it be that they fear what would become of them if the government disappeared and they were left to the mercy of gusano carpetbaggers? Could it be that they know that living in Cuba was never like living in Ireland, Spain or Belgium, unless you were part of the small elite strata that benefitted from Cuba’s exploitation and poverty?

  • I have the same question that Olgasintamales asked. Why do Cubans continue to put up with this BS. Have you been to Miami? Miami Cubans are some of the most demanding people I have ever met. Please don’t say that it’s because in Cuba, the Castro dictatorship is so scary. Have you seen the PNR patrullas lately. Dirty, unkempt uniforms and rusty guns are the norm for most of these guys. Is it the fear of losing a job? Don’t make me laugh. Where is the Tiannamen Square bravery? I just don’t understand why Cubans are so timid.

  • Summing up Cuba’s entire “revolutionary” history in 5 plain language questions and answers.
    1. What is Cuba’s number one export? Its working age people.
    2. What is the Cuba’s number one import? Foreign Currency.
    3. How many Cubans does it take to change a light bulb? Ten. One to change the light bulb; and nine government officials to process the paperwork for the permission to change it. Oops, make that eleven. Another Cuban has to go and find a light bulb, and then stand in line for hours to buy it.
    4. What is the Cuban government’s revolutionary solution to every problem? “Continuity.” Or, properly translated, “more of the same, but with more innovative insanity, and even more regressive severity.”
    5. What is the only real solution to all of Cuba’s chronic problems? Is there really anyone in the entire world who doesn’t know the only possible answer to that question?

  • Cuba is finished. Communism of all being equal is a myth. People, and children suffer while those in power become millionaires, a Cuba based on the Vietnam system surly would be a lot better than what’s in Cuba now and it still has a communist government.

  • What a disaster. And to think that when the Castro dynasty took power, Cuba had economic levels above Ireland, Belgium and Spain, the fourth economy in the Western Hemisphere. Why have Cubans sacrificed themselves for six decades? in a country where the only thing that works is repression to keep the Castro family and their henchmen in Power

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