The partial dollarization process began in Cuba in October 2019. In the face of the skeptical gaze of some and criticism of others, it was decided to sell electrical appliances, hardware and furniture in a small number of stores in the retail network.
The declared purpose was to capture the “dollars that fled the country” in the hands of those who traveled to other countries to buy merchandise and then resell it in the informal market. It was also defined as a “temporary” measure in response to the shortage of foreign currency for the purchase of inputs, goods and services.
However, even when the official discourse offered guarantees on the control of dollarization —Minister of Economy and Planning Alejandro Gil publicly stated that sales in dollars would not be expanded —, three years later, in Cuba most of the consumption goods and various services are sold in foreign currency.
As recognized by Raúl Castro in his Central Report to the 8th Congress of the Communist Party of Cuba, “sales in freely convertible currency were extended to other products, including food, with the aim of encouraging the remittances that Cuban citizens abroad send to their relatives in the national territory.”
In this way, the State is freed from its responsibility to guarantee the sale of foreign currency to its citizens at the official exchange rate of 1USD=24CUP, while all salary income is in national currency. For their part, families remain at the mercy of the money that comes from abroad. On the dollarization board, remittances are the essential piece.
Dependency grows, not availability
With the dollarization process, the formal channel that was defined for the entry of remittances into the country deposited in cards in freely convertible currency. Bank accounts referenced in dollars receive all formal transfers to residents within the island; but that, in addition, was imposed as the only way to pay for what is bought in the network of stores in foreign currency.
As researcher and professor, Francisco López Segrera1 has explained, the main sources of foreign exchange for the Cuban economy are remittances; the export of professional services, especially in the area of health; tourism; and the export of various products, such as those of the pharmaceutical industry, biotechnology, nickel, sugar and tobacco, among others.
The Cuban National Office of Statistics and Information (ONEI) does not give the public information on this type of income. However, figures provided by foreign organizations allow us to form an idea of its weight in the domestic economy.
In 2015, estimates from the U.S. State Department published by NBC News placed the annual remittances received by the country at between 1.4 and 2 billion dollars.
According to calculations by the Inter-American Dialogue — a Washington-based “think tank” in the field of international relations — with information by CNN, in 2019 Cuba received remittances worth more than USD 2.055 billion, equivalent to 2% of the national GDP.
However, this figure was reduced to a minimum in just two years. According to the Havana Consulting Group, during the difficult 2021, Cuba received the least amount of income through this channel. Only 1.084.01 billion dollars entered the island for this concept.
The notable reduction in financial aid coincided with the deepest economic crisis of the last two decades, for which efforts have been made to get around it, still without visible success, with the alternative of partial dollarization.
The main causes of the decrease were the restrictions imposed by the Donald Trump administration, which included the sanction in 2020 against FINCIMEX, the financial entity of Cimex S.A. in charge of Western Union’s remittance operations.
The Cuban community in the United States — which has the largest number of nationals abroad with more than 2.3 million emigrants — is the main provider of these contributions. The U.S. sanctions not only prohibited the transactions of the Cuban state entity but also limited the amount that each Cuban émigré could send from the United States to only 1,000 dollars per quarter.
Additionally, the limitation and almost nullification of international travel derived from the COVID-19 pandemic in the world reduced the informal entry of money, that is, the money brought by those who visit the island for their families or friends.
Also as a result of the financial limitations derived from the blockade, in 2021 itself — the year of the beginning of the monetary and exchange reorganization that eliminated the CUC but left the freely convertible currency in circulation —, the bank deposit of USD in cash was also “temporarily” suspended.
The measure restricted currency movement options to bank transfers only. This, even though a significant number of USD in cash enters the country as an informal remittance.
The result of the banking disposition has been the circulation through non-legal channels of the bills that arrive with international travelers: they are exchanged for freely convertible currency, at non-equivalent rates and that disfavor the currency in hand, or they are fundamentally marketed in CUP for their use on trips abroad.
Families and remittances: to have or not to have
Reliable figures on how many families do not receive income from abroad in Cuba are unknown, even though these are the most affected in the context of dollarization. For them, the only alternative to access foreign currency is to buy it at the cost of the informal market.
In a scenario of rampant inflation and prices determined by insufficient supply, the shortage of convertible currencies is also a reflection of economic ups and downs. The freely convertible currency has been quoted on the informal market for months above 110 CUP, while the USD in cash exceeds 100 pesos.
But in Cuba, the minimum pension is barely 1,528 pesos and the basic salary is 2,100 CUP. The simplest calculations show that without receiving aid from abroad, basic needs can hardly be met, even taking into account the subsidized basic food basket.
After the implementation of the Economic Reorganization, the real value of the salary has been drastically reduced. The demand that exceeds the supply reduces the purchasing power and triggers the price of products — which has also registered an increase in foreign currency stores — and increases the value of convertible currencies.
In a few words, the increase in salaries and pensions that accompanied the Reorganization process was nullified in practice.
The worst part is carried by lower-income families. Although some are hit harder by the crisis. According to sociologist and researcher Julio César Guanche, “for every dollar of remittance received by a black-skin person, a white person can receive up to three dollars, due to the historical structure of Cuban migration.
Within Cuban society, partial dollarization has a high social cost. It has deepened the differences between those who have access to foreign currency and those who do not, in such a way that they seem increasingly irreversible.
Remittances make an essential contribution to the survival strategies of Cuban families. And so, those who receive them can buy basic needs products such as toiletries, food and others, which are practically only found in stores in hard currency. For the rest, the options are: pay for them at resale prices of up to 10 times the original cost or try to survive without them.
Economist Óscar Fernández has warned that dollarization enhances “real inequality gaps”; and that “as long as the State does not intervene in the foreign exchange market to offer some legal means of access to freely convertible currency in exchange for Cuban pesos, state policy will be excluding large masses of people from consumption in these stores.”
On the outside, the economic measures unload on our emigrants the growing costs of living in the country, turning the alternative of sending aid to their relatives into an obligation.
Let’s hope we will not abandon the idea of a fairer society in the pursuit of remittances. The dollar’s way back into Cuba has not had a happy beginning. We will have to see the end.