Cuba Moves to Expand Use of US Dollar to Shore Up Economy

Dr. Jorge I. Dominguez is an academic leader who om the past had focused on Latin American economic and public policy research while a professor at Harvard University. One area in which Dr. Jorge I. Dominguez has extensive knowledge is Communist Cuba and the social challenges it faces.

As reported by Reuters, the Cuban government recently announced that it would take proactive steps in broadening the US dollar’s use. With the economy having flatlined in 2019 and being expected to decline as much as 10 percent in 2020, impacts have been felt widely. These include shortages in basic goods such as medicine and food. In addition to the coronavirus pandemic, which induced a sharp drop in international tourist visits, Cuba has had to cope with a tightening US trade embargo and a freefall experienced by its longtime ally Venezuela.

In late 2019, Cuba established 80 “dollar stores” which sell items such as motorbikes, home appliances, and used cars that have been purchased abroad using tradable currencies. With Cuba maintaining the peso and convertible peso as official currencies, tradable currencies such as the dollar can be legally possessed. However, they had not been allowed as legal tender for many years when it comes to purchases, but, in July 2020, purchases in such currencies were permitted once again in several dozen selected state-owned stores.

Dollar stores provide a way around this through dollar-denominated bank cards that represent accounts opened in currencies such as the US dollar or euro. These tradable currencies may be exchanged for local pesos, or obtained via offshore remittances. While the government claims that the convertible peso, pegged at 24 to the peso, is equivalent to a US dollar, the price of imported goods is prohibitive using that currency. This is related to goods having been purchased using tradable currencies, with the convertible peso having no value outside Cuba.

Through its new strategy, Cuba is returning to a policy that was implemented in the 1990s following the breakup of the Soviet Union, when the local currency no longer functioned. Concerns over the use of this strategy in the long term have to do with whether it will enable growth that is both sustainable and inclusive.