Dollarization in Cuba, the “New” Invention

By Francisco Acevedo

HAVANA TIMES – At the beginning of last week, the announcement that the US dollar would begin circulating freely in Cuban businesses surprised some, in yet another move by the government to stay afloat amid the country’s deep economic crisis.

A large part of this crisis is precisely the lack of hard currency, exacerbated by the recent measures taken by the newly elected Trump administration, which is another step in tightening its policy towards Cuba with the suspension of remittance transfers by Western Union.

This was one of the main ways to capture foreign currency through entities directly or indirectly associated with the Cuban state, and although it had been expected after Orbit S.A. was added to the blacklist, it is seen as a response to the dollarization that began last Monday.

According to Prime Minister Manuel Marrero, this is a temporary measure to capture the dollars that are held by Cuban citizens through stores that previously operated with the moribund Convertible Currency (MLC) or new private businesses.

“It is a necessary process to acquire foreign currency that is being circulated illegally in society and to give the government control over it and put it to use for the welfare of the population,” the official said bluntly.

Since the beginning of the year, USD began circulating in gas stations and later extended to tourism establishments, but tensions escalated in December with the opening of the supermarket at the Grand Muthu Habana Hotel, to the west of the capital.

Authorities acknowledged that dollar stores would continue to expand, as an extreme (and temporary) measure to raise hard currency in the short term, in a supposedly retail network. This is exactly how the story of MLC began, and it is still in effect.

However, it is important to clarify that the scope of the partial dollarization agreed upon at this moment applies only to specifically chosen businesses; it is not for all private businesses. Currently, the spheres in which dollarization will apply are tourism, Casas del Habano, clinics, pharmacies, international optical stores, and airports, including the payment of duties in foreign currency.

So far, only 16 businesses apply: eight linked to the state business system managed by the domestic commerce apparatus (one through an international economic association contract), three dedicated to wholesale marketing, and five joint ventures approved for the wholesale and retail marketing of consumer goods and various products for the population.

The Central Bank of Cuba (BCC) continues to insist that MLC does not disappear, but if popular trust was already fractured, it now receives a final blow by significantly reducing the areas where it is valid.

The BCC assured that accounts in this controversial currency still exist and remain fully valid, but in reality, citizens are trying to get rid of them as quickly as possible, fearing that they may disappear completely.

Created in 2019 as a banking tool, these accounts and their accompanying digital cards became virtual money because they could only be used within the country, which had already been affected by this dual currency system since the days of the CUC, which was abolished in 2020.

Since it is practically impossible to recover cash for this money, which was deposited in real dollars to create the accounts, the population now turns to the remaining stores with this service to buy what little is available, fearing that these resources will slip away like water through their hands.

The growing shortage of goods in stores created to meet the demand of MLC account holders does not help either, and some establishments have even closed due to lack of products. In fact, in January 2025, the informal value dropped to around 240 pesos per MLC, about 100 pesos below the exchange rate for USD, and now other cards, such as Fincimex’s Classic card and international MasterCard and Visa cards, are prioritized.

While the introduction of the CUC in 1994 helped the country somewhat recover from the so-called Special Period crisis, as most economists admit, its excessive extension over time, starting in 2004, worsened the issues associated with the dual currency and exchange rate system, which is exactly what is being sought to avoid now with this partial dollarization of the Cuban economy, referred to as temporary in some way.

The complications this causes in accounting, transparency, and the efficiency of companies, whether state-owned or joint ventures, is another difficult burden to solve because it also includes the deteriorating Cuban peso (CUP) in the equation, making the system unsustainable.

The significant difference is that in dollarized countries, such as El Salvador and Ecuador, wages are in dollars, and there is no national currency.

Here, the strategy is evidently to collect all circulating currency, and control that market, as Marrero openly admitted, while putting the increase in social inequalities in a secondary role.

In some way, the vicious cycle continues, as the foreign currency is recovered, only to be spent on imports, and the transformation of state-owned companies to boost their competitiveness has yet to be achieved.

It is the comprehensive economic changes that could yield long-term results, such as an integrated reform of macroeconomic and microeconomic changes, production incentives, and structural changes combined with worker protection. However, we continue to make adjustments without directly addressing the problem.

This partial dollarization experiment has been applied for some years in Venezuela, and as has been seen so far, it is very difficult to reverse once it has fulfilled its initial goal of capturing foreign currency. If they, with a much stronger economy, haven’t been able to do it, what will happen with ours?

Read more from Cuba here on Havana Times.