The government of Cuba partially formalizes de-dollarization in a desperate attempt to revive its dwindling economy. Cuba has introduced the new foreign-currency regulations to effectively find a genuine solution to long-standing economic problems. They announced several resolutions establishing rules for foreign-currency transactions, foreign-currency bank accounts, and access to foreign currencies. The US dollar is the center of this all, as it’s the most sought-after foreign currency in the country.
Cuba also explicitly marked the US dollar in the new partial de-dollarization policy. The government argues that controlling the flow of the US dollar by creating the new mechanism will help stabilize the economy. However, critics argue that the government is trying to capture the foreign exchange market through political control. They argue that the government seeks to weaponize remittances rather than genuinely reform structural issues.
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Government centralized currency control means only a few selected firms can get access to the US dollar. The others will be at a disadvantage, and only those close to the government’s circle could benefit. This could lead to more corruption in Cuba masquerading in the form of de-dollarization. Only selected companies can buy foreign currencies using pesos, paving the way for politicians to decide.
The trust in the banking system among the people of Cuba is already low due to rampant corruption. US dollar deposits were not respected by the banks, and discouraged entrepreneurs from depositing the currency. This led to the informal market (black market) to take shape as the US dollar is more valuable. Cuba’s partial de-dollarization motives could face setbacks and inadvertently push people towards the black market sector.
This isn’t the first time that Cuba has initiated de-dollarization, claiming to revive its economy. It was done in the 1990s, and many other times, but failed in its progress. This time around, too, the public remains skeptical of the government’s idea.