The return of the dollar to Cuba: A long hand dips into the pockets of exiles

When Cubans woke up in 2025, the country was the same, but their leaders assured them that things would be different.

This is the year in which the historic ration book — which guarantees a minimum amount of food for each Cuban family — will be gradually eliminated. It’s also the year in which the telecommunications monopoly — ETECSA — will substantially increase the rates of its service. But more significantly, 2025 will see the U.S. dollar (once again) officially circulate in some sectors of the economy.

The collection of foreign currency at all costs — that long hand that slips out of Havana and dips directly into the pockets of Cuban exiles — seems to be the last alternative that the country has to stabilize its completely bankrupt economy. The authorities have asked the people to trust them again, but the people don’t understand why they should. Why should they believe that this year will be any better than the last?

A new supermarket — located in the attractive Miramar neighborhood — is shown as the prelude to the country that Cuba will be from now on. At the store on 3rd and 70th street — managed by the MGM Muthu Hotels chain and the Gaviota Group — payments aren’t accepted in Freely Convertible Money (MLC). This is the virtual currency that — five years ago — the government said would solve the problems of the Cuban economy. MLC was intended to substitute the Cuban Convertible Peso (CUC), which had replaced the U.S. dollar after its value was pegged to a 1:1 exchange rate.

The new grocery store is stocked with sausages, beers, various meats, jams and personal hygiene products, sold at prices that the average Cuban cannot normally afford. These goods aren’t in the display windows of most other stores. The shop accepts cash (U.S. dollars), as well as Visa or Mastercard. Lines of credit are mostly paid off by clients’ relatives in exile. Over the past three years, more than two million Cubans have joined the diaspora.

Cuban citizen Iker Rafaeli Ruiz is convinced that neither the new supermarket — nor the return of the dollar to the Cuban economy — “will calm anyone’s hunger.”

“Why? Because not all the population has relatives in exile who send them dollars. These stores are for tourists, people who receive dollars and people in the government,” he shrugs.

A “partial dollarization” of the economy

Last year, authorities implemented several measures to get out of what they themselves admitted was a “war-time economy.” However, in December, President Miguel Díaz-Canel acknowledged that he was “dissatisfied” with not having achieved “the necessary speed” to resolve the crisis that Cubans are experiencing. To end the year, his government announced what’s already a reality: a “partial dollarization of the economy.” According to Prime Minister Manuel Marrero Cruz, they’re seeking “to improve the management, control and allocation of foreign currency.”

To this end, the government will now allow the use of the U.S. dollar in wholesale and retail sales, in foreign trade services, in the payment of tariffs, in sectors that aren’t managed by the state, as well as in certain establishments destined for tourism, along with other sectors. A new foreign exchange system was also approved for the informal market. According to Cuba’s leaders, the informal market is to blame for the illegal dollarization, which they’re now seeking to control.

Raising foreign currency is the Cuban government’s latest attempt to keep afloat a country that has been struck by the latest natural disasters. Fewer and fewer tourists visit Cuba, where inflation has hit almost 30% and an outdated electrical system results in almost-daily blackouts. Large shortages of food and medicine have made life on the island difficult.

“Cuba is an economy that suffers from a chronic shortage of foreign currency. When there are fiscal and monetary imbalances, the national currency loses relevance, because it’s more unstable and, therefore, less reliable,” says Cuban economist Ricardo Torres, who teaches at American University in Washington, DC. “The authorities are now dollarizing part of retail trade and other services, seeking to directly capture the dollars that have remained in homes and in the private sector.”

Even so, state media has called dollarization “a necessary evil,” in line with the decades-old love-hate narrative that the government has had regarding the US currency.

While some Cubans will now be able to pay with dollars in certain stores, years ago, many ended up in jail for the crime of “possessing foreign currency.” In 1993 — amidst a major economic crisis following the collapse of the USSR, Cuba’s main trading partner — Fidel Castro removed the crime from the Penal Code. Cubans were suddenly able to shop freely in stores that had previously been reserved for foreigners only.

Since then, the U.S. dollar has had a semi-presence in the Cuban economy, depending on the government’s needs, or on American policy towards Cuba. In 2004, Castro appeared on national television to announce that the use of the dollar would be replaced by the use of the CUC, as a response to Washington’s pressure on foreign banks, which prevented the island from being able to deposit foreign currency.

According to the official narrative, the new measure is yet another attempt to collect foreign currency. But Cuban economist Pavel Vidal — who used to work at the Central Bank of Cuba (BCC) — believes that the truth behind dollarization is different. “Sometimes, the government says that it’s dollarizing because of the need to collect foreign currency, but that doesn’t make sense, because all countries need to collect foreign currency and they don’t require dollarization,” he explains. “[The authorities] need the dollar because the Cuban peso isn’t a credible currency, it’s not a stable currency. The payment system associated with the Cuban peso is dysfunctional, the Cuban peso isn’t convertible. So, that’s why they need dollarization.”

Dollarization creates “division and inequality”

Cubans across the board agree that the government continues to take superficial measures, putting the burden of saving the economy on the shoulders of the exile community. This, in a country where the average salary barely reaches $20 a month. Economist Ricardo Torres insists that the Cuban authorities don’t have a “clear plan, nor a clear diagnosis of the situation in the country or its causes.”

“With every passing day, households depend less on the fruits of their labor and more on what’s sent to them by family members who live abroad. It’s an unsustainable situation; it creates unrest and resentment on and off the island. And, above all, it’s tremendously unfair that people — who have spent their lives working in a system that disregards work — are marginalized from even basic consumption, just because they don’t have U.S. dollars,” he laments.

In this desperate attempt to collect foreign currency, economists don’t see a truly counterproductive measure. In fact, it will serve to simply widen the gap between those who can access dollars and those who cannot. Torres believes that dollarization can have “some positive effects” and make “certain transactions more transparent or expand the use of a more stable currency.” However, the big problem is that this will be done in “a fragmented way, for some actors yes and for others no.”

“The government is going to collect more foreign currency… but experience shows that it hasn’t known how to make good use of those resources,” Torres says. “Why would it be different now? Ultimately, the redistributive effect of these schemes is very limited and it’s even less so today. Therefore, from the point of view of consumption, those who have access to dollars benefit, while the rest [of Cubans] won’t see any improvement.”

For many years now, remittances — along with tourism and the export of medical services — have been the principal streams of income that support the Cuban economy. In a report published last year, Cuban economist Emilio Morales noted that, in 2023, remittances to Cuba fell by 3.31%, down to $1.97 billion. In 2022, the country received $2.04 billion. The government has left the responsibility of supporting Cubans left behind on the island in the hands of exiles. But although there are more and more Cubans abroad, many of those who remain on the island don’t receive help from relatives who live abroad.

Pavel Vidal says that dollarization generates “division and inequalities” and that, additionally, it doesn’t guarantee a general economic recovery. “It leaves behind all the industries and markets that aren’t dollarized and generates inequalities for families that don’t have direct access to remittances or another source of foreign currency. They’re the ones who are excluded from these markets.”

An alternative that’s not “ideal,” but necessary

Although the Cuban government has often gone back and forth between removing and adding the U.S. dollar to the island’s economy, Ricardo Torres believes that it’s “impossible to eliminate this influence” when it comes to the currency of the country where most Cubans abroad reside. “When the economy depended mostly on the [USSR] — and later on Venezuela — the Cuban government could afford to reduce its role in the economy. But without significant external help, its role is greater, because remittances, tourism from the United States and food imports become key flows. Now, we’re at this stage,” he says. Even so, he sees a political factor and even a “pride” in the fact that this opening to foreign currency is only partial.

Pavel Vidal believes that this is an alternative that’s not so perfect for the government. This is because, after receiving U.S. dollars in its economy, “it has to place them in the international financial market,” something that’s not so simple due to the banking restrictions imposed by America’s economic embargo against Cuba.

“Dollarization isn’t ideal, but there are times when the government believes that the benefits are greater than the costs. Such as today, when there’s a tremendous crisis and when the peso is experiencing a triple-digit inflation rate. There’s an exchange rate in the informal market that they cannot control,” the economist points out. “It allows them to guarantee the operation of some stores, hotels, industries, but they’re not going to extend dollarization to the entire economy, due to the fact that the dollar is the currency of the country that sanctions Cuba and would generate an unadvisable financial vulnerability.”

Upon reflection, he adds: “I also think it’s a matter of pride. The Cuban peso is a symbol of autonomy, of independence. Renouncing the Cuban peso has never been among the government’s political options.”

At the beginning of a year full of uncertainties about the economic future of the island, many know that dollarization isn’t the definitive option to the crisis that the country is experiencing. It’s not a reliable scenario when several currencies are in circulation — something that a government task force attempted to change in 2021, ultimately failing to do — or when only partial measures continue to be taken.

“A well-functioning economy that prudently manages its fiscal and monetary policy should have a single currency and a single exchange rate,” Vidal emphasizes. “Since the fall of the [USSR], the government has implemented some changes to the centrally-planned economic model, but it hasn’t implemented a comprehensive reform of [said model]. And bringing the entire economy to a single currency — to a floating exchange rate — would imply implementing more important reforms that the government has long been resisting.”

It’s something that economists have said before: there will be no real change in Cuba, so long as the state controls all sectors of the economy. “A wide-ranging macroeconomic stabilization program is needed to curb and reduce fiscal imbalances, excessive money issuance and inflation. Structural reforms are required to guarantee greater efficiency in the economy, greater participation of the private sector and less of a monopoly by state-owned companies,” Vidal insists. “The multiplicity of currencies responds to the reality of isolated, fragmented reforms and the resistance to implementing a deep and comprehensive transformation of the failed model of a centrally-planned economy. This is the most comprehensive reform that they’ve been resisting,” he concludes.

Translated by Avik Jain Chatlani.