“Money is the oil fueling the economy’s engine. If the amount of oil needed is not supplied, it breaks down.”
Before I begin this article, a caveat. Cuba is one of the countries in Latin America with which I am least familiar, having regrettably never visited the country nor had much contact with it. It is also a country with a complex history that is going through a very painful economic transition that is certainly not helped by the US’ ongoing 61-year embargo. But this story is, I believe, one that needs telling, particularly in light of the broad global trend of governments and central banks seeking to undermine or even eliminate cash as a means of payment and replace it with far more traceable digital forms, including CBDCs.
At the beginning of this year, as readers may recall, the Central Bank of Nigeria (CBN) took a series of drastic measures to restrict access to cash in a desperate bid to boost cashless payments, in particular its floundering central bank digital currency (CBDC), the eNaira, among other objectives. As with India’s brush with demonetisation in 2016, the result was widespread chaos and economic pain — in a country where 63% of the population was already poor and 33% unemployed. The lives, jobs and businesses of untold numbers of people were upended. Economic growth spluttered and inflation surged to an 18-year high.
In March, the central bank finally suspended the monetary experiment, but only at the dogged insistence of Nigeria’s Supreme Court. Weeks later, the central bank’s governor, Godwin Emefiele, was suspended from office by the country’s newly elected President Bola Tinubuand and taken into custody by Nigeria’s secret police. He now faces 20 criminal charges including misappropriation of funds. Even more embarrassing, the CBN, now under new management, just released a report warning that the eNaira — one of the main reasons for the CBN’s demonetisation program — could represent a threat to financial stability.
Now, it looks as if the Cuban government wants to take a leaf out of Nigeria’s playbook. At the end of this month (October 2023), cash will no longer be accepted at any gas stations in the country, reports Agencia Cubana de Noticias, the government’s official state news agency:
With the incorporation of the provinces of Havana, Matanzas, Villa Clara, Ciego de Avila, Camagüey and Holguin to the schedule for the elimination of cash in the sale of fuel in gas stations, this process, which began on September 1, will conclude on October 31.
The Cimex S.A. Corporation, in charge of fuel commercialization in Cuba, published today on Facebook the dates scheduled for each of the establishments in the referred provinces, so that throughout the country will be used exclusively electronic means of payment for the purchase of fuel.
Instead of cash, citizens and businesses will be able to use “chip cards [that] have been implemented for the state and non-state sector, magnetic stripe cards (national and international), disposable prepaid cards with six denominations (25, 75, 125, 250, 500 and 1,250 pesos in national currency), electronic pins through the Transfermovil payment gateway, and the rechargeable chip card.”
Local and Foreign Currency Shortages
Unlike in Nigeria, Cuba was already suffering from an acute shortage of both local and foreign currency well before the government’s introduction, in early August, of measures aimed at promoting electronic forms of payment, increasing access to formal banking services and restricting the use of cash. In May, the island’s Minister of Economy and Planning Alejandro Gil acknowledged that there was a lack of paper money, because “the level of demand is great and the capacity we have to introduce new paper money does not satisfy the demand.”
He also remarked that physical notes are expensive to print, issue, store and process, adding that Cuba “must invest in the banking of transactions, because we gain in transparency, security and control, and operations can be monitored for the issue of taxes.” And a whole lot else, of course, which is ultimately one of the main selling points of the cashless economy for governments around the world, particularly those that are rapidly losing control of their restive populaces.
On August 2, the Cuban government passed a raft of measures banning state and private businesses — yes, they do exist in the country — from using ATMs and placing a 5,000 peso (around $20) on cash withdrawals, among other things. As in Nigeria, they are making an already difficult economic panorama a whole lot worse, particularly for many of the recently established small or micro businesses. From Havana Times:
When the Cuban Government announced in early August that it was taking a leap towards electronic payment systems and a “cash-free” society, red flags began to appear for emerging small businesses on the Caribbean Island, Reuters news agency reports.
The most alarming thing for many budding business owners was the 5000-peso maximum daily withdrawal limit, approximately 20 USD, for businesses, a measure that the Government said was intended to steer Cubans towards digital transactions, by bank transfer, online payments and bank cards.
These changes were necessary to stop cash shortages, officials at the Cuban Central Bank said, while the rapid drop in the peso’s value and prices increasing also contributed to draining bank reserves and ATMs.
Big Obstacles
What the Cuban government is essentially doing is refusing to provide the cash the economy needs to function — and what’s more, at a time of surging demand for cash. While encouraging the adoption of electronic payments and access to formal banking services are both admirable goals, what the government seems to believe is that “it can force banking services on its population and implement a digital payment system in just six months,” notes a recent article by Cuba Horizontes, an initiative of the Colombia Law School’s Cuba Capacity Building Project:
It expects this to happen in a country with one of the most backward telecommunication infrastructures, and with one of the most underdeveloped banking and payment systems in the region, and with an elderly society.
Not only do they seem to ignore that advances in banking services and digital payments would take years, or decades, but also that public trust is an essential element for success.
This was a lesson learned in the hardest imaginable way during Nigeria’s recent experiment with demonetisation. As I reported in June, the hugely destructive experiment did irreparable damage to public trust in the country’s central bank and banking system, which is ironic given that lack of trust is one of the biggest obstacles to public adoption of the country’s floundering central bank digital currency (CBDC), the e-Naira.
In Cuba, public trust is also a major issue. When the central bank first announced limits on daily and monthly money transfers earlier this year, many people decided it was better to keep their money under the mattress. According to the news website El Toque, the reduced hours of the banks (9:00 am to 3:00 pm), the acute shortage of ATMs (100 of the countries 168 do not have any) forced many to withdraw the money at once and have kept it at home since.
As in Nigeria, the more difficulties Cubans face in accessing their own funds, the less likely they are to trust the banking system. A similar thing is happening with many private businesses, reports Havana Times:
Even before these new restrictions, Cuban business owners were facing what might seem unsurmountable obstacles, such as blackouts and Internet cuts, fuel shortages and no legal way to change large sums of local currency into USD, which are needed to import merchandise from abroad.
[One business owner] says that three days after the rules were implemented the bad news came: many suppliers began to announce that they weren’t accepting bank transfers, only cash from now on because they were afraid they’d lose access to the paper cash they needed to operate, the exact opposite of what the law wants to do.
Cuba is currently in its worst economic crisis since the “Periodo Especial” of the 1990s, which began at the beginning of the decade with the dissolution of the Soviet Union, the country’s sugar daddy (consistently accounting for around 70% of all trade, including, crucially, oil and gas), and continued until the end of the decade when Hugo Chavez’s oil-rich Venezuela emerged as Cuba’s primary trading partner and diplomatic ally.
The latest crisis comes after two and a half years of sweeping economic reforms. On January 1, 2021, Miguel Díaz-Canel’s government declared monetary unification. From that date on the convertible peso, or CUC was no longer accepted as currency, though it could be exchanged for the Cuban Peso, or CUP, any time before the end of 2021. The CUC had been in limited use since 1994, when its value was pegged 1:1 to the US dollar.
The Diaz-Canal government also began allowing Cuban citizens to incorporate small and medium-sized businesses with up to 100 employees. The move came 11 years after Raúl Castro passed a reform allowing the self-employed working in 83 different job classes to hire staff other than relatives. As Al Jazeera noted in July, “the private sector is roaring back, bringing with it more productivity but also more inequality to the island nation.” More than 8,000 SMEs have been registered since the 2021 reforms.
But the country has also suffered a collapse in its currency, a huge surge in prices of just about everything, acute shortages of food, fuel and medicine, and constant power blackouts. Although the economy grew by 1.8% in the first half of the year, it remains 8 percentage points below where it was in 2019, before the pandemic…
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Nick Corbishley 