![]() In 1997 the Central Bank of Cuba was created, which led to the development of the financial system, while inflation continued to be controlled. This decade also witnessed the establishment of the two tiers that replaced the former single bank system. Among them should be highlighted the promotion of foreign investment, tourism, individual enterprise and the entry of remittances, in addition to greater decentralisation of the State’s corporate management. Furthermore, a significant number of structural transformations were implemented that proved to be valid by rescuing from recession a country that had remained isolated after the disintegration of the USSR. Among the main factors contributing to the stability of prices were the freeze on nominal wages, the reduction in the fiscal deficit from 30% to 3% of the GDP, the control of the money supply, exchange rate stability and the encouragement of partial dollarisation. In the second half of the 1990s, Cuban economic policy was able to control the three-digit inflation that had emerged at the beginning of the decade as a result of the crisis and macroeconomic imbalances. ![]() Within what the government itself has come to call ‘a handmade economy’, the monetary and financial perspective presents a veritable jigsaw puzzle, not only for those becoming acquainted with the Cuban economy for the first time, but it is also hard to decipher for foreign businessmen and investors operating in Cuba and even for the very designers of the economic policy. ![]() The design of the Cuban model likewise exhibits characteristics that have developed as a response to the need to outwit the restrictions imposed by the US embargo. Over the last two decades, the Cuban centralised state economic model has undergone several reform and counter-reform processes. The currency duality and its exchange and financial repercussions have formed part of an economic policy of a discretional nature, with a lack of transparency, weak institutions and an excessive amount of prohibitions. The Cuban monetary and financial scene is currently reduced to an economy based on two currencies –the Cuban peso and the convertible peso, both with convertibility problems and with multiple and overvalued exchange rates– and has been subject to a banking crisis since 2009. The balance of payments crisis in 2008-09 and a succession of mistakes in economic policy have resulted in new monetary and financial complications to be added to the costs and distortions of currency duality. The elimination of the dual currency remained outstanding. Existing inflation was halted at the start of the 1990s, the financial system was developed and inroads were made towards the de-dollarisation of the economy. The government has been applying a tough adjustment policy which has led to the reduction in the fiscal deficit and to a surplus in the balance of payments, which has served to pay off debt and gradually unfreeze bank accounts, although the matter is far from being fully settled.Īnalysis: Cuba’s monetary and financial policy has recorded significant achievements in the last two decades. The country cannot access a last-resort loan from the IMF, the World Bank or the IDB since it is not a member of these institutions. Cuba’s banks are facing a systemic liquidity crisis with no lender of last resort to help them out of it. In order to do away with the dual currency and overcome financial imbalances, monetary policy must devalue the two domestic currencies. It is a veritable monetary and financial jigsaw puzzle. Summary: The Cuban economy currently operates with two local currencies –the Cuban peso and the convertible peso, both with convertibility problems and multiple and overvalued exchange rates– and has been subject to a banking crisis since 2009. ![]() Theme: The 2008-09 balance of payments crisis and a succession of errors in economic policies have resulted in new monetary and financial complications in the Cuban economy, to be added to the costs and distortions of currency duality. ![]()
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