Cubans suspects banks amid gov’t crackdown on cash

Cubans, accustomed to carrying substantial amounts of cash due to historical mistrust of the country’s banking system, are skeptical about the government’s attempts to compel them into depositing their money into an ailing financial infrastructure. This initiative aims to counter escalating inflation and enhance liquidity.

The communist nation is grappling with its most severe economic crisis in decades, marked by double-digit inflation and extensive money printing, which has resulted in a surge of physical currency in circulation.

Due to longstanding reservations about the efficiency of local banks, Cubans have increasingly turned to cash, particularly in recent months, to evade long queues and withdrawal limitations at ATMs.

In pursuit of increased liquidity, transparency, and control over the flow of money, the government recently unveiled measures to restrict cash payments, with the intention of encouraging electronic transactions for businesses and citizens.

Under this gradual reform set to unfold over the next six months, cash transactions will be capped at 5,000 pesos (equivalent to approximately $20 on the black market).

“In the current times, 5,000 pesos holds little value,” remarked Lisandra Pupo, a 30-year-old mechanical engineer who, like many Cubans, prefers the security of physical cash.

Escalating prices and the declining worth of banknotes have compelled individuals on the island to stuff cash into bags or backpacks even for minor purchases.

Lisandra Pupo expressed concerns over using banks: “If I have a substantial amount of money, I wouldn’t entrust it to the bank. If I need it tomorrow and I visit the bank, they might not have the funds available. I would have to wait for days until they accumulate enough money.”

Despite these reservations, economist Omar Everleny Perez underscored the necessity of transitioning toward banking given the high costs and the absence of higher denomination banknotes.

However, Cuba’s outdated banking infrastructure poses a risk of rendering users unable to access their funds at all. Internet connectivity is unreliable, many lack smartphones for contactless payments, and Central Bank president Joaquin Alonso acknowledged the scarcity of card payment terminals.

Alonso explained the challenges of installing point-of-sale terminals and the considerable investment required. Nonetheless, he affirmed the commitment to move forward, as a substantial amount of cash outside the banking system hinders the economy’s natural circulation and fuels inflationary pressures.

Cuba’s ongoing economic crisis has multiple dimensions, stemming from decades of US sanctions, inefficiencies, limited foreign investment, and heavy dependence on imports. The Trump administration intensified sanctions against Cuba, and the Covid-19 pandemic severely impacted the tourism sector—a primary source of foreign exchange—hampering its recovery.

A 2021 monetary reform that phased out a convertible peso tied to the US dollar resulted in a sharp depreciation of the regular peso’s value. The country faces extended queues for essentials like food, fuel, and medicine, prompting a wave of emigration.

Official data indicates year-on-year inflation reached 45.8 percent in May, and analysts believe it has potentially reached triple digits, surpassing the official figures of 39 percent for 2022.

This complex economic scenario also affects small businesses. Despite being granted legal recognition for the first time in 2021, these businesses fear the shift towards electronic transactions. Private business consultant Oniel Diaz highlighted the concern that these enterprises will lose their ability to import goods “within an environment of scarcity and inflation,” amplifying the challenges they face.

Pan Finance is a print journal and news website providing worldwide intelligence on finance, economics and global commerce. Known for our in-depth analysis and opinion pieces from esteemed academics and celebrated professionals; our readership consists of senior decision makers from across the globe.

Contact us