Alejandro Fonseca, a resident of Havana, is often faced with long bank queues due to Cuba’s ongoing cash crisis, a consequence of decades-long economic sanctions coupled with the government’s difficulty in handling a dual-currency system. The local economy’s heavy reliance on physical cash often leaves individuals like Alejandro battling to secure the necessary funds for their daily survival.
The recent efforts by the Cuban government to unify the country’s currency have led to an increase in inflation, worsening the situation. These lengthy banking queues highlight a broader economic crisis in Cuba that puts considerable strain on common Cubans. Furthermore, the crisis is deepened by the country’s entrenched economic problems, such as an increasing fiscal deficit and failure to return cash to banks, as seen in the analysis by Havana Economics Professor Omar Everleny Pérez.
Also, substantial declines in foreign investments, halted economic aid from Venezuela, a drop in productivity in key sectors, such as tourism and sugar production, all contribute to worsening the fiscal situation. With chronic cash shortages, it’s clear that initiatives by the government towards economic reforms have seen negligible impact so far, thereby heightening financial stress for the Cubans.
Despite the shortage, there is money in Cuba albeit not in banks. Entrepreneurs and small business owners hoard Cuban pesos to trade illegally for foreign currencies. Aside from illegal trading, many Cubans also heavily rely on remittances as a primary income source, adding to the country’s economic disparity.
Coping with Cuba’s escalating cash crisis
Moreover, the US embargo on Cuba has noticeably affected its economy, leading to extensive shortages in essential supplies.
Disparate exchange rates add to the struggle, with systemic official rates versus volatile black market rates, causing severe inflation and making it hard for businesses to predict costs or revenue. According to recent statistics, about 70% of cash was held by individuals in 2022, up from 50% in 2018. This trend suggests a shift towards electronic payments, yet cash still plays an essential role in economies, more so in developing countries where banking access is limited.
The Cuban government’s attempts to instigate a “cashless society” and mandate credit card use for certain transactions have been met with resistance by businesses, further hampered by poor internet connectivity. Despite such challenges, many Cubans remain resilient while combating economic hardships. But the overall economic growth of the country is significantly restricted due to trade limitations and dominance of state-run enterprises.
It’s vital to acknowledge that the recent reforms aimed at increasing wages are yet to yield significant results, adding to the perceived economic despair. Cuba’s over-reliance on tourism — affected substantially by the Covid-19 pandemic — amplifies its economic instability. These economic challenges, along with high inflation and stagnated wages, necessitate concerted efforts, innovative approaches, and multidimensional strategies aimed at improving long-term economic resilience for Cuba. In conclusion, efficient monetary policies and bold reforms are urgently needed to curb the cash-shortage crisis and economic disruption, thus protecting all citizens, especially those in lower-income brackets.
