2023-08-07 23:39:00
Cuban economist Oscar Fernández warned that the regulations for the so-called “banking” of Cubawhich the authorities announced last week to, presumably, tackle the cash shortage suffered by Cubans, It’s like “putting out a fire with gasoline”.
In a extensive analysis of the repercussions that the regulation might have, which entered into force last Thursday and will be applied gradually for six months to cover monetary exchanges in Cuba, which from now on will have to be electronic when dealing with transactions greater than 5,000 pesos , the expert predicted what might happen in the coming months.
“Increasing the levels of banking access is essential for our economy, but Resolution 111 that the Central Bank has just released is suicidal. Attempting to apply at this time what this rule dictates will mean a devastating blow to all people: pensioners, workers, small owners, students, the unemployed, remittances, everyone,” said the economist, who works as an independent consultant.
“The lack of cash in banking institutions is undeniable and it is true that private commerce still has very low levels of bank usage, which makes the situation extremely complex. But there are other aspects that have not been addressed that also appear as causes behind the shortage of banknotes ” Fernandez said.
Summing up, the expert recalled that In January 2023, the Central Bank of Cuba imposed a restriction on transfers between natural persons with a limit of 120,000 pesos per month.whose purpose would have been “to limit operations related to the informal currency market.”
Fernández recalled that “The result was the unbanking of all these operations, which were suddenly pushed into the cash economy.”
“The development of the informal exchange market and the continuous depreciation experienced by the peso, whether as a result of real variables or organized attacks, is the entire responsibility of the Government, which should long ago have assumed the reins of the exchange market by buying and selling currencies at the market rate.
The direct and immediate consequences of adopting this measure are very easy to predict,” he anticipated.
According to the economist, who is a professor at the University of Havana and usually publishes his analyzes in the digital media OnCubathe first consequence will be that “bank branches will be overwhelmed when, to the already diminished services offered today, thousands of operating SMEs join daily to make deposits or request withdrawals”.
“There will be a severe reduction in the supply of private imports (the cancellation of contracted containers has already begun) as it was unable to close the cycle, given the absence of a ‘banked’ exchange market. The prices of products that had begun to fall will run wild once more, national productions that had some imported component provided by the private sector will be affected, productive chains that benefited the state sector will be affected. And so, following the so-called multiplier effect, The stagflation in which we find ourselves with greater impacts for those with lower incomes will worsen”alerted.
Fernández recalled that the markets of MSMEs, where consumer products such as food are sold at stratospheric prices, serve not only Cubans with higher incomes, but also those who “find in this private offer a better alternative to the black market, both in price as well as security, and by the way, many times cheaper than what the MLC stores offer”.
“Besides, when the private supply of chicken disappears, the people with higher incomes will generate a demand that will be satisfied by the chicken of the poor. And they will divert and buy the chicken of the poor. It’s that simple,” she emphasized.
“There will be an impact on the employment and stability of many familiesgiven that numerous private enterprises (not only imported products merchants) are going to close or be severely affected, and others with the idea of starting businesses are going to abort it”.
“There will be an expansion of informal markets and a deepening of the dollarization process in them. Banking will put a strain on the circulation of cash in CUP (Cuban pesos), but it will not reduce the economy of cash. The dollar will assume that function. Financial digitization is not going to get the Cuban peso to recover its monetary functionsOn the contrary, let us dismiss the CUP as a unit of account and as a means of hoarding. And to top it off, let’s welcome a new informal cash market,” he continued.
“The autocratic decision-making method that the Government demonstrates with this announcement is incomprehensible and very discouraging. If you want to talk regarding socialist democracy, I see no justification for a measure of this scope not to be presented to the National Assembly a week before “, he questioned.
According to Fernandez, “Those who decided to impose this norm in the current circumstances, without considering these and other consequences, make the same mistake as those who imposed the Ordinance. A necessary policy, but applied in the wrong sequence and under the wrong conditions, produces a result very different from the one it claims to pursue. Seems like a repeating pattern. The damage will be irreparable. Time is running out, people are exhausted, they give up, they quit.”
Finally, he stated: “With decrees like this, the infamous US blockade does not have to devise new ways that generate suffocating restrictions, their work is made easier. Recognize that it is a mistake to apply this rule in the current circumstances, and rethink a A different strategy to increase the bankarization of the economy and to alleviate the shortage of cash, is what corresponds now. We must go back now, although it is probably too late!”
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