Strangled by its own ineptitude at managing the country’s finances and economy, the Cuban regime is turning to its old trick of scaring people in order to subdue a population that has been fleeced countless times before, ever since Fidel Castro rose to power.
Thus, the Government is temporarily suspending the acceptance of bank deposits in US dollar notes. The measure will take effect on June 21. Cubans will have until the 20th to deposit dollar notes in their USD bank accounts. According to the Central Bank of Cuba (BCC), as of June 21, natural and legal persons, both Cuban and foreign, will not be able to make deposits, or carry out any other transaction, in US dollars at Cuban banks.
The measure is a ruse to get people to deposit any dollars they have "under the mattress," as the regime has run out of dollars and does not have the money to pay the few suppliers left on its list. Moreover, Exchange houses (CADECAS) and banks are not taking in dollars, as people prefer to sell them on the street, at a rate of 1=70 CUP. The black market has dominated the currency exchange war and overwhelmed banks and CADECAS, thanks to the grandiose and misguided "Ordering Task," supposedly implemented to reform the country's finances.
In reality, what does this measure mean? Very simple: as of June 21, all deposits in dollar accounts will have to be made in other currencies, a maneuver that aims to place millions of dollars in the regime's hands, thanks to the mandatory currency exchange charge. Every time a deposit enters one of these accounts, the bank will levy a tax based on the exchange rate that it establishes for each currency with respect to the dollar.
In other words, one is forced to have an account in dollars, but can only deposit in a currency other than the dollar, being forced to pay the exchange fee imposed by the Central Bank of Cuba.
In this way the regime aims to continue bleeding all those Cuban exiles who send remittances in dollars. Now it will force them to send them in another currency, and will apply an exchange charge when deposits are made in the accounts of the beneficiaries. Through this measure the regime also intends to eliminate the informal market for the physical sending of remittances, by forcing exiles to send dollars electronically. In the event that they are exchanged for Euros, or another currency, and sent to Cuba in cash, the tax on the currency exchange will be applied to the other currency when it is deposited in a dollar account.
In reality, this measure will not bolster the economy at all; quite the opposite. The dollar is going to skyrocket on the black market, bound to surpass the current exchange rate of 1 USD = 70 CUP. Even if it is not accepted by banks, the dollar will continue to dominate the black market, as it is the currency with which Cubans travel abroad to buy items to later sell them on the informal market.
In addition, the measure will drive up the exchange fees of the other currencies used on the black market. Consequently, there will be an increase in inflation and a rise in product prices, on both the formal and informal markets.
The Cuban government lies
The minister of the Central Bank of Cuba (BBC) expressed in her remarks at the Round Table that "the measure is due to the economic sanctions of the United States Government against Cuba and the inclusion of Cuba on the list of countries sponsoring terrorism, which represents an obstacle to international financial transactions."
The Cuban government has for some time now carried out most of its commercial transactions in Euros or other currencies. Only remittance operations, payments to tourist operators from the US market, purchases made in cash from American farmers, and certain operations carried out with companies in Panama, have been completed in dollars. The rest of the commercial operations carried out by the Cuban Government in its foreign trade are in other currencies. This measure took effect many years ago, back when Carlos Lage was the secretary of the Council of State.
As is well known, more than 90% of the remittances that reach the country are from the US. Therefore, most of the remittances that arrive in Cuba are in US dollars. As we have already explained, the Cuban regime controls remittances to the island via formal channels through national and foreign companies forming part of the business structure of GAESA, the conglomerate belonging to the Armed Forces. All these operations, which involved sending remittances from the US, are carried out in US dollars. Those dollars always end up in bank accounts in a third country, and are never actually placed into the hands of those to whom they were sent. Instead, these companies give Cubans their equivalents in Cuban pesos, which are worthless outside the country.
In 2020, dozens of Cuban companies belonging to the Cuban Armed Forces were sanctioned. Among them, the most important in the financial sphere were companies involved in handling remittances from abroad; in this case, FINANCIERA CIMEX S.A. and AIS S.A., both belonging to the Grupo de Administración Empresarial (GAE S.A.), colloquially known as GAESA.
This group also includes the Banco Financiero Internacional (BFI), the bank of the Cuban military, and that which handles the largest number of commercial operations in foreign currencies, and it is where the foreign companies operating in the country have their accounts in dollars. This is the bank that collects funds from all import and export operations related to non-state forms of production (the self-employed and Non-Agricultural Cooperatives), carried out through 36 state companies specialized in these tasks.
Therefore, it is striking that just six months after the Cuban government authorized the company RED S.A. - a non-bank entity belonging to the BCC, and one outside the business structure of the Armed Forces - to process remittances to Cuba, in order to resolve the issue that currently prevents dispatches from the US, the BCC has taken this measure.
At the end of the day, the remittances are still in limbo. GAESA continues to resist giving up control of them, and the new measure is the solution found. The aim is two-fold: to keep dispatches in dollars totally digital, but also to force physical deposits in dollar accounts in other currencies, to make money off the exchange fees.
Foreign companies present on the island will also be affected, already suffering from the financial restriction that prevents them from repatriating their profits in dollars. Now they will be bled by the forced exchange conditions imposed on them.
Conclusions
The Cuban Government has just applied an explosive measure in the midst of the financial crisis that the country is suffering through. Not only does it further irritate a population that has been frustrated for some time now (its weariness exacerbated in the last 18 months by the impact of the pandemic and the severe economic, political and social crisis that the country is enduring), but it also hurts the few investors on the island.
This theft that has just been implemented is a perverse and abusive measure that, far from buoying the economy, is going to be a burden that could exhaust the peoples' patience and start an inflationary storm at a time when the dollar is already trading at 70 CUP, and the Euro at 80/85 CUP, on the informal market.
The solution required by the complicated situation of the Cuban economy does not involve hijacking the dollar and remittances, and putting the financial screws to citizens even more, but rather to finally free up the country's productive forces, open the market to free enterprise, and allow citizens to generate wealth.
The schemes to survive of Díaz-Canel and the mafia leadership whose orders he follows are failing, and each new measure that they implement is more mediocre than the previous one. The trigger that set off the French Revolution was a rise in the price of bread for a hungry population, for the fall of the Berlin Wall it was a bungled order ... At this rate, it seems that the dictatorship's final blunder could come at any moment.