MEXICO CITY, Mexico.- In his appearance at the plenary session of the National Assembly of Cuba, Prime Minister Manuel Marrero Cruz announced that the economy Cuban It will operate in 2025 under partial dollarization schemes.
During his speech, he stated that they will approve previously authorized companies to carry out wholesale and retail sales, payment of tariffs and services associated with foreign trade operations in foreign currency.
They will accept foreign currency in cash in tourism, Casas del Habano, pharmacies, opticians and international clinics, airports and others that are authorized. Producers of exportable goods and agricultural producers that substitute imports will receive payment in foreign currency. The regime will thus try to compete with the market informal currency exchange, over which “there has been no control” and has had an impact, in Marrero’s opinion, on the dollarization of the economy.
Why does the partial dollarization of the Cuban economy occur?
Economist Pavel Vidal, professor of the Department of Economics at the Pontificia Universidad Javeriana in Cali, Colombia, and doctor in Economic Sciences from the University of Havana, explained, in exclusive statements to CubaNetthat the dollarization of the economy is a recognition that the Cuban peso is not fulfilling its basic functions as a means of payment, unit of account and reserve of value, which are the three functions that a currency must fulfill.
“The persistence of very high inflation rates and the depreciation of the informal market exchange rate are evidence that the monetary and fiscal policy in Cuba does not work. They have not been managing the state budget well and deficits and they have been accumulating imbalances that prevent the Cuban peso from being effectively functional and fulfilling its main purposes and then when that happens the alternative is dollarization,” he commented.
Although dollarization often happens informally in market transactions, he said, the regime is institutionalizing it because the government itself recognizes that for certain important sectors to generate income in foreign currency, the sector has to be dollarized.
“All countries need exports and income in foreign currency and there is no need for dollarization. With a stable national currency and a functional exchange market with a coherent exchange rate, the entry of foreign currency into the country is guaranteed without the need to replace the functions of the national currency for dollars,” he argued.
However, in the Cuban case it is not guaranteed because there are different exchange rates and the official exchange rates are completely outdated. “There then comes the correction that they say they are going to make, the resizing, intervention of the exchange market to set the exchange rates one by one, but it will be only one of the exchange rates and that does not solve the problem.”
Is dollarization the solution?
Economist Mauricio de Miranda Parrondo also agreed that the claim Fixing an exchange rate and partially dollarizing the economy is not the solution to the problem.
In a publication made in his networks social, the expert indicated that with dollarization “they continue in the rentier logic without pointing to what is essential, which is productive paralysis.”
“Or it is assumed that the Cuban peso is the currency of use in all national transactions at a flexible exchange rate established by a formal and transparent exchange market (they finally accept without acknowledging that they were wrong, that an overvalued official fixed exchange rate was incorrect) or the entire economy is dollarized or euroized. In this way the entire population earns and spends in the same currency,” he said.
Partial dollarization does not offer a perspective of solution for a structural problem in Cuban economic development.
Will the official rate be imposed above the informal rate?
He economist Cuban Emilio Morales, vice president of the Ideas laboratory Cuba 21st century, he doubted, in an interview with CubaNetthat the establishment of a formal rate dominates the market.
“People don’t trust the banks“, he alleged, and added that under this premise, it will be difficult for the Government to restore confidence in consumers because they will continue to prefer to have the dollars under their protection before putting them in the State coffers, he said.
“There is no human way to demonstrate that what they are doing will be viable.” posing. We have to see now when they put the floating exchange rate, how people react, what the change is going to be like. Let’s now see what the pulse of the rate that they set is, which is the rate that people would follow, officially, normally, on a day-to-day basis, with the rate that they are going to set,” he concluded.
Risks of dollarization: The danger of state banks
For Mauricio de Miranda Parrondo, one of the risks of the new measure is a greater deterioration of the peso exchange rate, which contributes to the loss of purchasing power and consequently to the increase in impoverishment of the Cuban people.
Pavel Vidal, for his part, warned that with a central bank that is not independent, a floating exchange rate carries many risks.
The Government would appropriate the dollars it captures from the exchange market, and that “is a latent risk”: “It would make that whole mechanism that they are thinking about in the end not sustainable.”
When partial dollarization made its way in 2019 before the implementation of the so-called “monetary order,” the authorities already had doubts about the power of the Cuban peso.
According to Vidal, the monetary reform process would put the Cuban peso at the center of the financial system as the only means of payment, but right at that moment dollarization began.
“They themselves have never believed, they have never been convinced that the economy can be functional with the Cuban peso. “They themselves do not believe in the national currency and in the mechanisms they have to make a payment system based on the Cuban peso work,” he stated.
