The Cuban government has revealed plans to broaden the dollarization process within its economy through a series of initiatives aimed at increasing the use of foreign currency in business, commercial, financial, and investment activities. These measures will also ease access to the currency exchange market for state-owned enterprises, private entities, cooperatives, and foreign investors.
This set of proposals is part of a wider package of 176 economic and social reforms presented by Prime Minister Manuel Marrero Cruz to the National Assembly of People's Power.
Enhancing Foreign Currency Utilization
The principal measure is outlined in Axis 16: Scope of Partial Dollarization of the Economy. Here, the government plans to enhance the use of foreign currency in intercompany and commercial transactions. This includes replacing the current closed-loop systems of foreign currency self-financing with models based on contributions derived from currency transactions.
However, the expansion of dollarization extends beyond these areas, impacting various economic activities significantly.
Facilitating Currency Exchange Market Access
Among the planned changes is the introduction of new avenues for state companies and private actors to access the currency exchange market and conduct operations in foreign money. The government suggests allowing business structures involved in supply chains to access the exchange market, fostering input markets with currency access for all economic players.
Non-state management forms will be able to deposit foreign currency cash into bank accounts denominated in the same currency, provided they verify the legal origin of the funds.
Banking and Financial Reforms
In the banking sector, reforms will eliminate restrictions on foreign currency payments between foreign-invested businesses and national suppliers. The government plans to permit the opening of foreign currency accounts for individuals and entities without prior authorization, and to remove limits on bank transfers and fund withdrawals.
Additionally, the proposal includes creating private and state financial institutions, expanding private capital participation in banking activities, establishing entities for virtual assets, and formalizing private channels for remittances through last-mile payment agents.
Revamping the Currency Market
On the currency exchange front, the program aims to resize the official currency and remittance market by incorporating non-state economic actors. Measures include authorizing private exchange houses, creating a real-time digital exchange market, implementing currency auctions, and expanding financial institutions dedicated to exchange and remittance operations.
The document also details the participation of cooperatives, state MSMEs, foreign investment, and other actors in the so-called Segment II of the exchange market, with state enterprises free to sell and controlled in their purchase of foreign currency.
Moreover, successive devaluations of the national currency are projected with the declared goal of narrowing the gap between different exchange rates.
Opportunities for Foreign Investment
Foreign investment will have greater latitude to operate in foreign currency. Businesses with foreign capital are allowed to open bank accounts abroad without prior consent and can freely use their foreign currency earnings within the framework defined by the government as partial dollarization of the economy.
The broadening of foreign currency use will also touch specific sectors such as tourism, where plans include setting up a corporate bank with international links and services connected to virtual assets, alongside commercial activities that can partially function in pesos and foreign currency.
Commercial imports by individuals will also be sanctioned, with tariffs payable in foreign currency.
During his address to the National Assembly, Marrero Cruz acknowledged that partial dollarization is among the most sensitive aspects of the economic transformation process, warning that its implementation will bring challenges and contradictions that need to be assessed and addressed as measures unfold.
Understanding Cuba's Economic Reforms
What is Cuba's new strategy for dollarization?
Cuba's new strategy involves expanding the use of foreign currency in various economic sectors, facilitating access to the currency exchange market, and implementing financial reforms to support these changes.
How will these measures impact foreign investors in Cuba?
Foreign investors will have more freedom to operate in foreign currency, including opening bank accounts abroad without prior approval, and they can use their foreign currency earnings more freely in Cuba.
What are the implications for private businesses in Cuba?
Private businesses will gain easier access to foreign currency for transactions and be able to deposit foreign currency in bank accounts, provided they validate the lawful origin of the funds.