Title: Cuban Economist Warns of Devastating Blow to Cuban Peso with Implementation of “Zero Cash” Strategy
Subtitle: Financial Corralito Opens Doors for Currency Substitution and Increases Dollarization
In a recent warning, Cuban economist Pedro Monreal raised concerns about the potential negative impact of the Cuban government’s “zero cash” strategy on the already struggling Cuban peso. The strategy, which aims to gradually eliminate the use of cash in favor of electronic transfers, may have devastating consequences for the national currency.
Monreal took to Twitter to express his views, highlighting that while the financial corralito would limit the circulation of cash, it would not address the underlying macroeconomic conditions that have been plaguing the Cuban peso. In fact, he pointed out that the decision could lead to an increase in currency substitution, particularly with the growing value of the dollar and euro in the informal market.
According to Monreal, the Cuban peso fails to fulfill three key functions of money – medium of exchange, hoarding, and measurement – due to the prevailing macroeconomic conditions. Without an effective macroeconomic program, the economist cautioned that a strengthening of the US dollar would exacerbate the impoverishing effect on the Cuban population.
The announcement of the “zero cash” strategy immediately impacted the value of the Cuban peso. Recent figures from the informal market showed a sharp increase in the value of the euro and dollar compared to the Cuban peso. These exchange rates reached all-time highs, resulting in a significant drop in the Cuban peso’s value compared to a year ago.
Renowned economist Steve Hanke from Johns Hopkins University remarked on the situation, highlighting that the Cuban peso has depreciated by 68% against the US dollar since January 2022. Describing it as a “death spiral,” Hanke drew attention to the deteriorating economic conditions in Cuba.
Monreal further emphasized that the strategy goes beyond just financial digitization and incorporates social, ethical, and political dimensions that need to be considered in economic analysis. He questioned whether citizens would genuinely benefit from participating in financial digitization or if they are compelled to use it due to their dire circumstances. Monreal argued that financial digitization could potentially exacerbate inequality, as it often depends on the socioeconomic status of participants.
The economist also raised concerns about the Cuban authorities’ capacity to combat cybercrime associated with the new digital mechanism. With unfamiliar procedures for many Cubans, the transition could inadvertently open channels for scams and fraudulent activities.
Monreal criticized the lack of explicit consideration for the impacts on marginalized sectors in Cuba and the absence of measures to ensure digital financial inclusion and support the financial health of citizens. Additionally, he highlighted the focus on state intervention rather than empowering micro, small, and medium-sized enterprises (MSMEs) and individual workers.
In conclusion, Monreal discussed potential future developments of the Cuban government’s vision, such as the establishment of biometric access systems and the adoption of a centralized digital currency. He warned that these measures could pose risks to the citizens’ right to privacy and facilitate increased state control.
As the Cuban government pushes forward with its “zero cash” strategy, concerns continue to mount regarding its potential detrimental impact on the Cuban peso and the socioeconomic conditions of the population. The journey towards a cashless society in Cuba raises important questions about inequality, financial inclusion, privacy rights, and the overall direction of the country’s economic policies.
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