The Cuban Government’s Endless Chase after US Dollars

Cubans in line to enter a store in Havana that sells products with US dollar prices. File photo .

Of course, most of this foreign currency – which the Government envies – is moving in private hands, but retail sales is something the regime has sought to control and monopolize.

By Alejandro Armengol (Cubaencuentro)

HAVANA TIMES – The Cuban Government is buying dollars from anyone living on or visiting the island. It has entered the market as a capitalist system, with the propaganda that it pays a fair price: at an exchange rate almost five times higher than the current official exchange rate, which the Government established 18 months ago.

But this call for a quick-fix and not serious reform, has been repeated over decades. It wants to compete with the illicit market, and to capture foreign currency entering the country and circulating outside the state-controlled financial system, but it doesn’t understand (or doesn’t want to understand), how a free exchange market works.

Of course, most of this foreign currency – which the Government envies – is moving in private hands, and ends up in state-led stores in one way or another, but intermediary management – trade or simple exchanges – is something the regime has sought to control and monopolize.

For two essential reasons: because it likes monopolies and because of its inability to produce.

The Cuban State is capitalizing on its repressive power but is wasting its economic power. The reason for this inefficency boils down to the fact that bureaucrats don’t fill their pockets with efficiency, but just the opposite. As their privileges depend on access to goods and services, they keep them scarce, doing everything they can to perpetuate this situation.

So, the only thing worth pointing out about this is the way they choose to do this. They haven’t decreed hard line persecution of the informal exchange market but are instead looking to compete with it. You must admit there’s a certain pragmatism to this, at least. We know that a policy of police harassment would only make foreign currency even more expensive; although there is a chance that arrests and sentences for those who dedicate themselves to illegal currency exchange will increase from now on.

The Cuban Government’s problem is that the national currency has been devalued and their currency unification policy has partially failed, reflecting a much more serious economic crisis, which they have chosen to treat with small doses of ever-present repression with letting time pass by, waiting for a miracle? If you don’t believe in saints, at least try to invent them.

Time doesn’t help, of course. Year after year, they return to the discourse that no longer tries to sell a dream but asks for patience, with small-town rhetoric: “temporary period,” “a complicated situation,” “solidarity in times of crisis.”

“The country needs foreign currency to finance its economic and social development”, Minister of Economy, Alejandro Gil, said on October 2019, when it was established that Cubans could open up dollar accounts at local banks and thereby own debit cards to purchase electrical appliances, electric motorcycles, and other things. The Government would take on their commercialization seeking to collect foreign currency in the process.

Then, in June 2021, the Government “temporarily” suspended these cash deposits in USD, “given the obstacles placed by the US economic embargo, so that the national banking system can deposit USD they collect in the country, abroad,” according to an article by the official Granma newspaper printed on that day.

It was a measure to “protect Cuba’s financial system,” which was valid with USD in cash, but not “the existing accounts in this currency,” the regime’s official publication specified.

This regime, which doesn’t have an engine to move forward and another one to move backwards as the old song goes, lacking all movement, is now trying to buy foreign currency – and what about the “blockade’s” economic obstacles? – for a few notes which will only lose further value. There’s no doubt that the Government only has very limited availability of foreign currency, that it isn’t even worth talking about “the blockade’s obstacles.”

If the measure is to be successful – which is doubtful – then it will go hand-in-hand with higher inflation.

More money on the street, without increased productivity and international trade, will only further devalue national currency.

The Cuban Government has persistently tried to impose equality by decree, and it’s failed, for decades. Now, it is just as determined to establish laws that determine and regulate inequality.

Currency unification has been subordinated to increased productivity, for years. This is the only way wages can be substantially increased, thereby offsetting growing prices. This increase in production has never come about. Failure has been covered up and bureaucrats carry on with their hollow statements.

The end of the dual currency system was an attempt to put a little bit of order to the economic crisis, not on the street but between companies; the distorted prices, accounting ledgers and financial policy. Also, to attract more foreign investments. They didn’t manage to do this either. More covering up, silence and empty speeches.

Paralization, stuck in a rut, stagnation. These are all words people living on the island are familiar with. But what they’re seeing now is much more than everyday inertia, which they’ve been familiar with for a long time. Cubans are now falling into the abyss and nothing and nobody is there to save them.

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2 thoughts on “The Cuban Government’s Endless Chase after US Dollars

  • A basic and obvious economic principle is summarized in one sentence of this article:

    “More money on the street, without increased productivity and international trade, will only further devalue national currency.”

    Raising the exchange rate five fold from 24 pesos to 120 pesos per dollar may, in the short term, capture a few more dollars. But it will soon fail. There will simply be more pesos on the street chasing a shrinking supply of goods.

    The informal exchange rate will increase. Indeed, the informal rate has already risen to 135 pesos per dollar. (If you are calculating, that is 10% inflation in a just a couple of weeks.) And it will get worse.

    Inflation is a cruel tax on the poor. Without significant economic reform, the suffering of the Cuban people will continue to grow.

  • If the Cuban Government could point to a regulatory system that were producing better results, all would be fine. Only a minority would be complaining. People don’t really give too much a crap, if the day to day results are going ok.
    But we have too much regulation regarding the economic endeavours of individuals.
    Too much regulation regarding the agricultural sector.
    Not enough regulation regarding basic safety (eg defences against lightening strikes on oil facilities).

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