Miguel Díaz-Canel acknowledged this Tuesday that Cuba must “coexist with the partial dollarization” of its economy, while also announcing that work is underway on a new review of the monetary policy, in light of the profound deterioration of the financial system and the inflationary chaos affecting the population.
“We must continue working amidst all these situations and the distortions caused by the implementation of the regulations, in seeking a more flexible and realistic currency unification than what we currently have,” declared the leader during a meeting with executives from the national banking system, broadcasted by Canal Caribe.
Díaz-Canel acknowledged that the current monetary policy needs urgent changes: “We need to update our monetary policy and we must take a look at the current state of monetary policy in the coming months or weeks.”
The head of the Cuban regime defended partial dollarization as a reality that must be embraced, even pointing out that it could become an incentive if properly channeled through the financial system.
Seek measures that allow us to control inflation, how to live with partial dollarization and ensure that the partial dollarization of the economy actually stimulates foreign currency inflows,” he stated.
Díaz-Canel also referred to other ongoing challenges in the system: “How to stimulate national production through banking and financial activity, how to coordinate monetary policy with fiscal and social policies, because we are in a process of socialist construction,” he said, thus justifying the central role of the State in all economic decisions.
The leader concluded his remarks by reiterating the need to modernize banking and advance in digitalization and financial inclusion, although he avoided providing specific measures to address the cash shortage, the collapse of ATMs, or the widespread rejection of electronic payments.
The statements were made during a meeting that also included Juana Lilia Delgado, president of the Central Bank of Cuba (BCC), and other senior officials from the sector, who acknowledged the complex situation facing the banking system in 2024.
During the sector review, an alarming drop in deposits in Cuban pesos (CUP) was acknowledged, the constant growth of inflation, and the collapse of the banking system in the face of increasing cash demand from the population, which has "deteriorated trust in its institutions," as stated in the official report.
Ian Pedro Carbonell, director of Macroeconomic Policies at the BCC, spoke about the new management, control, and allocation mechanism for foreign exchange that is being implemented, aimed at "restoring the operation of the payment system" and allowing economic agents to complete their production cycles.
But in practice, structural problems persist. Informal dollarization, the loss of value of the Cuban peso, and the inability to freely access foreign currencies through official means, have fueled the black market and a parallel economy that further undermines the credibility of the state financial system.
Despite the rhetoric, the announcements were characterized by a lack of clarity. No dates or clear measures regarding the promised monetary update were mentioned, nor was there any information on the new exchange mechanism.
The growing discontent among the population regarding inflation and the dollarization of the economy, which is already directly impacting the prices of essential goods and services, was also not addressed.
Meanwhile, the Cuban peso continues its spiral of devaluation, and citizens must face a scenario where their currency loses purchasing power daily, while access to foreign currency is only possible through the informal market, increasingly beyond the reach of the average salary.
Frequently Asked Questions about Partial Dollarization and the Economic Crisis in Cuba
What does partial dollarization mean in Cuba?
Partial dollarization in Cuba involves the use of the dollar in certain sectors of the economy, such as wholesale and retail trade, the payment of tariffs, and foreign trade services. This measure aims to attract more foreign currency income and control the informal currency market, although it has generated inequality and economic exclusion for Cubans who only receive income in Cuban pesos.
Why has the Cuban government decided to implement partial dollarization?
The Cuban government justifies partial dollarization as a necessary measure to control the flow of foreign currency and counteract the illegal currency market. However, this economic policy has been criticized by experts, who argue that it reinforces economic distortions and increases social inequality.
How does partial dollarization affect the Cuban population?
Partial dollarization exacerbates economic inequalities, as the majority of Cubans do not have access to foreign currency and face difficulties in acquiring basic products. This measure has created a segmented market where only those who possess dollars can meet their needs, while the majority of the population continues to be affected by inflation and scarcity.
What challenges does the Cuban financial system currently face?
The Cuban financial system is facing a profound deterioration, with an alarming drop in deposits in Cuban pesos, rising inflation, and a banking collapse in the face of cash demand. The lack of trust in the state system and the proliferation of the black market further complicate the country's economic situation.
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