Miguel Díaz-Canel admitted on Tuesday that Cuba will need to "live with the partial dollarization" of its economy while announcing plans for a thorough review of the country's monetary policy. This comes in response to the severe degradation of the financial system and rampant inflation affecting the Cuban populace. "We must continue working amidst all these situations and the distortions created by the implementation of the monetary order. Our goal is to find a more realistic and flexible exchange rate unification," stated the leader during a meeting with national banking system officials, which was broadcast by Canal Caribe.
The Cuban leader acknowledged the urgent need for changes in the current monetary policy: "We need to update our monetary policy and, in the coming months or weeks, assess its current state." Díaz-Canel defended the partial dollarization as an unavoidable reality that, if managed correctly through the financial system, could even serve as an incentive.
"We need to implement measures that allow us to control inflation, learn how to coexist with partial dollarization, and ensure that it actually encourages the influx of foreign currency," he explained.
Díaz-Canel also addressed other pressing challenges facing the system: "How can we encourage national production through banking and financial activities, and how can we align monetary, fiscal, and social policies, given that we are in a socialist construction process?" he asked, emphasizing the central role of the state in all economic decisions.
In closing, the president reiterated the necessity to modernize banking and advance digitalization and financial inclusion, although he did not provide specific measures to address the cash shortages, ATM breakdowns, or widespread rejection of electronic payments.
The remarks were made during a meeting attended by Juana Lilia Delgado, President of the Central Bank of Cuba (BCC), and other senior sector officials, who acknowledged the challenging scenario the banking system faces in 2024.
During the sector's review, an alarming drop in Cuban peso (CUP) deposits, continuous inflation growth, and the banking system's collapse under the increasing cash demand from the public were acknowledged, which have "eroded trust in its institutions," according to the official report.
Ian Pedro Carbonell, Director of Macroeconomic Policies at the BCC, discussed a new mechanism for currency management, control, and allocation aimed at "reestablishing the payment system's functionality" and enabling economic agents to complete their production cycles.
However, structural problems persist. Informal dollarization, the Cuban peso's devaluation, and the inability to access foreign currency through official channels have fueled the black market and a parallel economy, further undermining the credibility of the state financial system.
Despite the rhetoric, the announcements remained vague. No specific dates or clear measures for the promised monetary update or the new exchange mechanism were mentioned. The growing public discontent over inflation and the economy's dollarization, which directly impacts the prices of essential goods and services, was also not addressed.
Meanwhile, the Cuban peso continues its downward spiral, forcing citizens to grapple with a scenario where their currency loses purchasing power daily and access to foreign exchange is only possible through the informal market, increasingly beyond the reach of the average salary.
Understanding Cuba's Monetary Changes and Challenges
What is meant by "partial dollarization" in Cuba's economy?
Partial dollarization refers to the increasing use of the US dollar alongside the Cuban peso in Cuba's economy, particularly in transactions and savings, due to the peso's devaluation and inflation.
What are the main challenges facing Cuba's monetary policy?
Cuba's monetary policy faces challenges such as rampant inflation, the devaluation of the Cuban peso, a lack of trust in financial institutions, and the need to integrate monetary policies with fiscal and social policies.
How does the partial dollarization affect the Cuban population?
Partial dollarization affects the Cuban population by making access to goods and services increasingly dependent on US dollars, which are often only available at high rates on the black market, beyond the reach of the average Cuban salary.