“From now on, financial and banking institutions will accept cash deposits in US dollars, the acceptance of this currency in the purchase and sale of foreign currencies will continue,” the Central Bank of Cuba said in Decree No. ° 63.
It is noted that lifting the ban on the use of cash dollars in financial institutions “responds to current circumstances and economic policy priorities.” At the same time, the decision of the Cuban regulator indicates that this measure is taken taking into account the gradual “post-pandemic” economic recovery, the resumption of the tourist flow to the country and the revival of industrial activity. However, Cuba continues to face strong sanctions pressure from the United States, which continues to prevent Havana from depositing US currency in its overseas accounts.
“Established in August 2022, the foreign exchange market has created the conditions for accepting cash in cash on deposit accounts, as well as for carrying out foreign exchange transactions,” the Central Bank said in a resolution.
View of Havana
Then, the Cubans waited for the devaluation of the national currency: the official rate was set overnight at around 120 pesos for 1 US dollar. Dollars were allowed to both sell and buy. But it was impossible to deposit dollars in cash into a foreign currency account in a Cuban bank, from which it was then possible to pay for purchases in foreign currency stores.
As expected by the authorities, these measures should have been enough to reduce the demand for money. However, the miracle did not happen. The “black market” continues to operate: Cubans still need currency, because someone is going abroad, someone is trying to save money and someone is simply paying with it (although formally the circulation of dollars in cash is prohibited). When it is impossible to officially buy dollars in the required quantity, the peso continues to gradually depreciate against the dollar. To date, the “black market” gives about 190 pesos for 1 dollar.
The removal of restrictions on the acceptance of dollars by Cuban banks may well stimulate demand for the US currency in the country. And that, in turn, could lead to further depreciation of the Cuban peso among speculators. It seems that only a significant increase in the supply of dollars in official exchange offices can help to stop the devaluation of the national currency. Whether the Cuban authorities will opt for such “inappropriate” spending of scarce dollars under the conditions of an acute economic crisis is an open question.
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