The decision of the Cuban Central Bank to digitize commercial transactions, forcing companies and individuals to carry out most of their financial transactions through electronic channels, is aggravating "the worst economic crisis the island has suffered since the fall of the Soviet Union," according to experts. Several analysts warn that the move decreed by the communist leaders in Havana is a de facto "corralito," a Spanish term for what is essentially a freeze of bank assets, that will make the population's access to food even more expensive and difficult. The "battle for dollars" opened by Miguel Díaz-Canel seeks to "reduce the availability of cash, the number of businesses and that fewer people try to buy dollars so they can capture a little more of those dollars."
Cuba’s Central Bank is dramatically restricting the amount of cash in local currency that private businesses can withdraw from their bank accounts, a move that threatens food imports amid ongoing shortages in #Cuba.https://t.co/WMAeOEIF1m pic.twitter.com/CLyFn7jy0Z
— Nora Gámez Torres (@ngameztorres) August 4, 2023
Obliges cash receipts to be deposited in the bank within 24 hours
Officials justified this measure as a way "to encourage digital transactions." In addition, with this initiative, they intend to bring to light many private companies' operations that are beyond the control of the system. According to the regime, with this initiative, the island's leaders demonstrate that they "listen to the citizens," who complained about the shortage of available cash. The move's aim is to "protect them," as stated in Cuba's Official Gazette on Aug. 2.
The increased use of cash in economic and financial transactions has led to a decline in the levels of banking penetration and financial inclusion in the country, in addition to the high costs associated with its issuance, transportation, processing and storage, as well as the growing demand in the number of ATMs for cash withdrawal.
The new order "approves the banking rules on limits for cash receipts and payments in local currency, its deposit, withdrawal and holding," The measure repeals Resolution 369 of 2021, which established a limit of 2,500 Cuban pesos in cash in purchase and sale transactions. Since last Saturday, the limit has been 5,000 Cuban pesos, but citizens are obliged to deposit the cash they receive in the bank within 24 hours. Failure to comply with this order may result in forfeiture of the property.
"Economic repression" in Cuba
Critics denounce that, in reality, what Díaz-Canel and his collaborators are doing is trying to capture and retain the scarce amounts of dollars on the island. In statements to El Nuevo Herald, several businessmen, who asked not to be identified, say that this is "a populist measure" that only benefits the regime itself and will harm ordinary citizens. "This is a crazy idea. A populist measure because people complain that there is no money in ATMs. But what are you going to do, stop the economy?"
Yosué Montes de Oca, founder of the technology company AlaSoluciones, told Infobae that "this new fence (it is not the first) will have a direct and rapid impact on the price of products and services, as well as on the value of foreign currency. They denote a total disconnection with the reality that exists in Cuba." Cuban economist Elías Amor described the new resolution as "economic repression." Amor accuses the regime's leaders of having caused the current crisis, but they intend to make citizens pay for the consequences:
The communist regime creates the problems, but applies the adjustment measures to others. Just like that. The increase in the "bankarization" of financial transactions through electronic payment channels is not intended to improve the service for economic actors, nor to meet their growing needs for cash. It only makes the adjustment of monetary control fall on the weaker party and sends a message: here we obey, always, at any price.
Amor also doubts that the measure will be successful, since it tries to promote the digitalization of Cuba's economy and financial transactions via mandate when the country is not ready for it and most banking operations are carried out with cash at bank branches. "It is the eternal obsessive mania of Castroism that an economy can function by publishing regulations in the official gazette. A misconception. The normal thing to do is to observe what is happening in reality and if it has to be regulated, to do so by interfering as little as possible in these processes. Just the opposite of Castroism, which has believed for 64 years that an economy can be controlled and managed," analyzed the author of the Cubaeconomy blog.
"Putting out a fire with gasoline"
This opinion is shared by another economist, Óscar Hernández, who described the measure on Facebook as "putting out a fire with gasoline." Hernández warned that "Increasing banking penetration levels is essential for our economy, but Resolution 111 just released by the Central Bank is suicidal. Trying to apply at this moment what this regulation dictates will mean a devastating blow for all people: pensioners, workers, small landowners, students, the unemployed, remittances, everyone."
There will be a severe reduction in the supply of private imports (the cancelation of contracted containers has already begun) as it will be unable to close the cycle, given the absence of a "banked" exchange market. The prices of products that had begun to fall will once again skyrocket, national productions that had some imported component supplied by the private sector will be affected, 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.
