Havana Faces Cash Shortage amid Deepening Economic Crisis
HAVANA (AP) — Alejandro Fonseca, a 23-year-old Cuban, recently experienced the frustration of waiting in long queues outside a bank in Havana, only to find out that the cash had run out just before his turn. Frustrated, he traveled several kilometers on his electric tricycle to another branch, finally managing to withdraw some money after wasting his entire morning. Fonseca’s experience reflects the increasing challenges faced by many Cubans who have to navigate through the complexities of the island’s monetary system, compounded by a shortage of cash.
Long queues have become a common sight outside banks and ATMs in Havana, as people line up early in the day to get cash for routine transactions such as purchasing food and other essentials. Experts attribute this cash shortage to a variety of reasons, all linked to Cuba’s deep economic crisis, which is regarded as one of the worst in decades.
Omar Everleny Pérez, a Cuban economist and university professor, points to several culprits behind the shortage. The government’s growing fiscal deficit, the absence of banknotes with higher denominations, persistently high inflation, and the hesitancy of entrepreneurs and small business owners to return cash to the banks all contribute to the scarcity of cash circulating in the country.
Pérez emphasizes that most of the cash is being held by entrepreneurs and business owners instead of salaried workers, as the former are more likely to collect cash from commercial transactions. These individuals often hold onto their Cuban pesos, either due to a lack of trust in local banks or a need to convert the money into foreign currency. Many entrepreneurs in Cuba rely heavily on imports for their businesses, requiring them to pay in foreign currency. Consequently, they hold onto Cuban pesos, waiting for an opportunity to convert them on the informal market.
However, converting Cuban pesos into other currencies presents yet another challenge due to the existence of various fluctuating exchange rates on the island. The official rate used by government industries and agencies is significantly different from the rate used by individuals. For instance, the official rate is 24 pesos to the U.S. dollar, while individuals have to exchange at a rate of 120 pesos to the dollar. On the informal market, the dollar can fetch up to 350 Cuban pesos. This volatility in exchange rates further complicates the cash shortage issue.
According to Pérez, the distribution of cash has also undergone a significant shift. In 2018, 50% of the cash in circulation was held by the Cuban population, with the remaining 50% in Cuban banks. However, by 2022, the majority of cash, 70%, was found in the wallets of individuals. This shift raises concerns about the availability of cash within the banking system itself.
The scarcity of cash compounds the challenges already faced by Cubans dealing with a complex monetary system where multiple currencies circulate, including a virtual currency called MLC, introduced in 2019. To exacerbate matters, the Cuban government announced measures in 2023 aimed at promoting a “cashless society,” making credit card usage mandatory for certain transactions. However, many businesses refuse to accept credit cards, further limiting the options for Cubans.
High inflation also adds to the difficulties faced by the Cuban population. Official figures indicate that inflation stood at 77% in 2021, dropping to 31% in 2023. However, these figures do not accurately represent the reality faced by average Cubans, as market inflation can reach triple digits on the informal market. The escalating prices of goods create a struggle for individuals who require increasing amounts of physical bills to afford daily necessities.
The monthly salary for Cuban state workers ranges from 5,000 to 7,000 Cuban pesos, which is equivalent to $14 to $20 in the parallel market. This meager income makes it even more challenging to cope with an economy that operates with multiple currencies, exchange rate fluctuations, and high inflation rates.
Pavel Vidal, a Cuba expert and professor at Colombia’s Javeriana University of Cali, observes the complexities faced by Cubans in such an economic environment. He notes that living in an economy with multiple currencies, various exchange rates, and triple-digit inflation is exceedingly complicated.
The shortage of cash in Cuba, amidst the deepening economic crisis, highlights the urgent need for comprehensive reform measures to address the fundamental challenges facing the island’s monetary system. As the government continues to grapple with these issues, it will be crucial to restore trust in the banking system, streamline currency exchange mechanisms, and implement effective measures to combat inflation.
The implications of these challenges extend beyond the economic sphere, impacting the daily lives and aspirations of the Cuban people. As society becomes increasingly cashless, the government must ensure that the necessary infrastructure and acceptance of digital payment methods are in place to prevent further exclusion of individuals who do not have access to credit cards or digital wallets. Additionally, efforts should be made to stabilize the exchange rates and reduce the volatility in the informal market, fostering a more predictable and transparent financial environment for businesses and individuals alike.
Looking ahead, it is essential to recognize the potential future trends related to these ongoing issues in Cuba. Addressing the cash shortage can not only alleviate the immediate economic burden for the Cuban population but can also pave the way for a more robust and sustainable economy in the long run.
In conclusion, the cash shortage in Cuba is a pressing concern that reflects the deepening economic crisis on the island. The scarcity of cash, coupled with a complex monetary system and persistently high inflation, poses significant challenges for the Cuban people. To overcome these hurdles, comprehensive reforms and strategic measures are necessary to restore confidence in the banking system, stabilize exchange rates, and promote a more inclusive and resilient economy. Only through concerted efforts can Cuba unlock its full economic potential and improve the lives of its citizens.
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