Partial dollarization in Cuba
Responding to economic crisis, the government reestablishes dollar stores
The new dollar stores in Cuba have been a topic of discussion among the people recently. Addressing the phenomenon, an article by Jesús Rojo, “Tiendas en Dolares en Cuba,” was posted in the chat of the Cuban Society for Philosophical Investigation.
Rojo began by noting that Prime Minister Manuel Marrero Cruz had announced, in the closing session of the National Assembly of People’s Power in December 2024, that there would be a partial dollarization of the economy. But Cubans initially were paying little attention to the issue. It was not until the beginning of the new year that the theme became a topic of much discussion on social media, when a supermarket selling products in dollars was opened at Third Avenue and Seventieth Street in the Havana municipality of Playa. Rojo found it curious that immediately following the Prime Minister’s announcement, there were dozens of articles on the matter in the United States, while in Cuba there was initially only a moderate level of expression of dissatisfaction with the plan in the social media, until the first dollar store opened.
Dollar stores, Rojo noted, are not new in Cuba. Indeed, they have a long history in the Cuban economy. In the 1990s, there existed a national network of stores that sold in dollars, and the hotels had dollar stores. The dollar stores of that era were successful. Combined with the growth of tourism, the dollar stores led to an increase in the value of the Cuban peso (from 120 or 150 Cuban pesos per dollar to 24 or 25 Cuban pesos per dollar), because they enabled the National Bank of Cuba to attain greater solvency and to operate with a higher level of foreign currency. There was at that time a greater capacity to sell dollars (or its later equivalent, the Cuban convertible peso) to the population, which at the same time, due to a slight increase in salaries, was able to purchase goods in the dollar stores. The stability of the currency exchange rate, maintaining itself at 24 or 25 Cuban pesos per dollar, was maintained for twenty years.
Therefore, Rojo concludes, dollar stores have demonstrated their effectiveness in collecting dollars and enabling the stabilization of currency exchange. Cuba lived for decades in an economic situation significantly better than today, and one of the reasons was the existence of dollar stores, or stores that sold in Cuban Convertible Pesos (CUC), which was a Cuban currency set at nearly the same price as the dollar. Rojo points out that the use of dollar stores in national economies is not unique to Cuba; many countries have stores in foreign currencies. This question, he noted, is of much greater interest to the U.S. media than in Cuba.
Why has the Cuban state decided to turn to a partial dollarization of the economy? Because, Rojo observes, the Cuban economy has had, for many years, a shortage of strong foreign currencies, like the dollar, which has a direct impact on the Cuban economy. Therefore, the government must create mechanisms to collect what little foreign currency is available and use it efficiently. Prior to the Prime Minister’s December announcement, the government had adopted two principal measures designed to strengthen the entry of foreign currency into the country. First, the government greatly increased authorizations of private small and medium enterprises, with the intention of integrating them into the state companies and the state banking system. Secondly, the government created a new virtual currency, known as freely convertible money (MLC for its initials in Spanish). MLC is not a cash currency. The people establish MLC bank accounts and make deposits in one of several international currencies, such as the dollar or the Euro, typically online deposits via family members living abroad. The people use MLC debit cards in MLC stores to purchase goods. The MLC was established as a temporary mechanism for collecting dollars.
However, the results of these measures have been insufficient, largely because of the extensive use of an informal currency exchange, which is conducted without the participation of the state. My contacts in Cuba tell me that there are two widely used forms of exchanging currencies informally, beyond the control and participation of the state.
First, the new private economic sector of small and medium-sized businesses has been exchanging dollars illegally in the informal exchange market. Most of the privately owned stores sell goods in Cuban pesos and buy goods abroad in dollars. When they exchange their pesos for dollars, they overwhelmingly use the informal market rather than the bank, because they get a better exchange rate in the informal market exchange. Thus, the government banks are excluded from the exchange of pesos for dollars, through which they would receive a percentage.
Secondly, many people do not deposit money directly to their MLC accounts. Rather, they arrange to receive dollars in cash from outside the country, through various means. Rather than going to the bank to deposit their dollars in their MLC accounts, they exchange the dollars for MLCs informally, by giving cash in dollars to a person with an MLC account, who digitally transfers MLCs to the MLC account of the buyer, avoiding a fee or tariff. To the bank, the transaction is recorded as a cost-free transfer from one MLC account to another. But what actually has occurred is that an individual—who has received cash in a foreign currency from outside the country—exchanges it for a Cuban currency, without the bank participating in the currency exchange, and without the bank changing a fee for the exchange or setting the rate of exchange.
This maneuver of evasion of bank fees functions to exclude the state from a high volume of currency exchanges. The MLC stores collect more than two billion dollars per year, a great part of it through remittances from family members living abroad; but the Cuban state participates in only one-third of the exchanges of the foreign currency into MLC. For the Cuban consumer, it is more economical to receive the money in dollars in cash, and to exchange for MLC through a neighbor, friend, or family member.
The evasion maneuver contributes to the shortage of foreign currencies in Cuban banks. There are other factors as well. In general, people have high levels of confidence in the dollar and Euro, and they sometimes hold it in reserve in their residences. At the same time, the low level of foreign currencies in state banks is exacerbated by the fact that tourism has not recovered to its pre-pandemic level. (Prior to the pandemic, there were more than four and one-half million tourists per year, and now the level is less than three million).
The establishment of dollar stores is a response to the problem of foreign currency shortage. My contacts inform me that the first dollar store has drawn a high volume. Many of the people believe that the dollar stores will be expanded, and the MLC stores will be eliminated. The MLC stores appear to be not restocking their inventories, and they are quickly losing their utility. Even though many people have MLC accounts, they are now oriented to purchases in Cuban pesos and in dollars, as the two fundamental sources for the satisfaction of their needs. However, the Central Bank of Cuba has made no announcement to this effect, and note the report on the Mesa Redonda news program below.
It should be noted that, according to my contacts, the lack of state control of economic exchanges refers to the buying and selling of currencies and not the buying and selling of goods, which is well controlled and regulated by the state, although with some illegal price gouging. The selling of goods is done by persons and entities that are authorized to do so, whether they pertain to the private or the public sector.
Rojo lists six advantages of dollar stores.
(1) Dollar stores make available to the consumer a greater variety of goods than what is available in the stores that accept Cuban pesos, which of course continue to function.
(2) Dollar stores enable the government to capture foreign currencies that are remittances from outside the country, which can be used to provide services and to acquire and subsidize essential goods sold in the Cuban peso stores.
(3) Dollar stores stimulate the economy, in that the income generated can be invested in local production.
(4) Dollar stores facilitate transactions involving the use of international debit and credit cards, thus simplifying purchases for tourists.
(5) Dollar stores improve the quality and variety of products, because they attract consumers with access to dollars as well as foreign diplomats in the country.
(6) Dollar stores enable stabilization and state management of currency exchanges, which is a primary goal of the economic plan.
On the other hand, Rojo lists five disadvantages of dollar stores.
(1) Dollar stores generate social inequality. Only Cubans with access to foreign currencies, tourists, and diplomats have the capacity to use the dollar stores.
(2) The majority of the population receive most of their income in Cuban pesos, and they have limited access to the dollar stores. Those in conditions of economic vulnerability are even more marginalized.
(3) For the population with limited access to dollars, the products of the dollar stores are costly.
(4) The prohibition of the exchange of Cuban pesos for dollars in banks stimulates a black market in dollars and other foreign currencies.
(5) The dollar stores have been the focus of dissatisfaction and social discontent, which could possibly generate dissatisfaction with the economic policies of the government.
But in general, Rojos observes, if the foreign currency captured in the dollar stores is used to invest in the development of national production, as is the plan, then the results will be control of inflation and greater satisfaction among the people. What is at stake is the control of the two billion dollars annually of foreign currency exchanges, which would enable better administration and the recuperation of national production and the economy of the country.
Jesus Rojo concludes with the observation that, in his view, the government should have communicated more effectively to the people with respect to the reestablishment of the dollar stores.
On January 29, 2025, the daily Cuban news discussion program Mesa Redonda was devoted to the question, “Why the partial dollarization?” Participating in the hour-long panel were the Vice-Prime Minister of the Economy, the Vice-President of the Central Bank, the First Vice-President of the CIMEX retail store chain, and the Head of the Commercial Department of the Caribe retail store chain.
They maintained that the unconventional war directed against Cuba in recent years by the USA has led to a shortage of foreign currency in the hands of the Cuban state, which has made necessary the establishment of dollar stores, through which the state can capture foreign currency, which will enable the state to manage the currency exchange market. It is a partial dollarization; projections for 2025 indicate that 90% of the domestic commerce in Cuba will be conducted in national money. They stressed that partial dollarization is a temporary measure, to be implemented until the currency exchange market attains stability. And they emphasized that the MLC debit cards and MLC stores remain active and in use by the population, although at a reduced level during the temporary use of the dollar stores.
The February 5 edition of the Mesa Redonda explained that the dollar stores are being developed as stores with different forms property, including ownership by the state, by Cuban state/foreign capital joint ventures, and by Cuban private capital. The dollar stores are selling both national and imported products. The dollar store infrastructure is being developed in order to provide consumer goods to the people. It is necessarily temporary, because the people have unequal access to dollars. When macroeconomic stabilization is attained, the dollar stores and their structures will be converted into stores that sell in national currency.
The Cuban government and the Party are responding to the economic crisis with political intelligence and sound economic policies, which bodes well for the long-term viability of the Cuban socialist project. Although there are some internal factors that contribute to the current economic difficulties (such as a few policy errors, bureaucratism, and poor work habits), the economic crisis is overwhelmingly external in origin. It has been primarily caused by the intensification of the U.S. blockade, the COVID-19 pandemic, higher prices in the world-economy, and a worldwide decline in international tourism. In response to the crisis, not only is the Cuban leadership implementing a well-designed economic plan, it also is deepening its relations with the nations of the Global East and South, which are cooperating in the day-by-day construction in practice of a more sustainable world-system. These dynamics indicate that Cuba will overcome its economic difficulties gradually over the next several years, even if the intensified blockade continues. If the world situation improves, the Cuban socialist project could enter a new era of prosperity.
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