Marrero and the inconsistencies of dollarization
By Jessica Dominguez Delgado (El Toque)
HAVANA TIMES – Prime Minister Manuel Marrero Cruz, presented an update on the government’s plan and projections for 2025 at the National Assembly of People’s Power on December 18, 2024. In his over two-hour intervention, he emphasized the increased use of dollarization as a strategy to generate foreign currency.
“This is a necessary process to acquire foreign currency and allow the government to control it, using it for the benefit of the population. However, it is reaffirmed that in all government programs, the path forward is the de-dollarization of the economy,” stated Marrero.
While his overall tone sought to present a positive outlook, claiming, “although there are positive results, progress remains insufficient,” the contradiction regarding dollarization is evident. On the one hand, measures deepening dollarization continue to be implemented—some of which were announced during the National Assembly session in July—and on the other, it is presented as a necessary evil and not a long-term goal.
On this topic, economist Pedro Monreal wrote on his social media account: “It is a glaring inconsistency to declare in the same speech that ‘partial dollarization schemes’ will operate in certain activities while simultaneously affirming that the government’s policy remains advancing toward the de-dollarization of the economy.”
Marrero’s statements about dollarization and the announced measures are misleading and reflect shifts in the government’s rhetoric. The official discourse on this issue has evolved from denial to acceptance; now, they continue to dollarize the economy while downplaying the impact and presenting it as a necessity.
Dollarization: A Government Decision
Marrero claimed that the informal currency exchange market has caused the dollarization of the economy. According to him, “the market determines its own exchange rate, currently at 1 USD to 320 CUP [matching figures published by El Toque], meaning prices are set in dollars, even though the official currency is the Cuban peso.”
However, five years have passed since the return of foreign currency usage in domestic transactions on the island. On October 16, 2019, then-Economy Minister Alejandro Gil announced the opening of MLC (magnetic dollar) stores for “selling appliances, car parts, and other mid to high-range goods.” It quickly became clear that this would be the state’s almost exclusive method of selling products.
Between 2020 and 2023, other sectors were dollarized. Some establishments, for instance, were permitted to offer specific services in foreign currency: tourism businesses, Casas del Habano, pharmacies, optical stores, international clinics, and airports. Other tourism and transportation services, though not exclusively, have also favored foreign currency card payments.
In December 2023, Marrero Cruz announced further dollarization with measures such as implementing a new mechanism for managing, controlling, and allocating foreign currency to economic actors and authorizing tariff payments and associated foreign trade services in foreign currency for private actors.
In March 2024, the Official Gazette published a Council of Ministers’ Agreement to update fuel prices in both national currency and dollars. Dollar sales were presented as a way to generate revenue to replenish national reserves.
By December 2024, dollarizing the economy has become a quick fix for bringing foreign currency into state accounts, depleted by low exports and, particularly, underperforming tourism.
Measures Announced on December 18, 2024
- A “variable rate” will be established to intervene in the currency exchange market. Marrero provided no details about its functioning.
- Certain sectors, particularly exporters, will be temporarily authorized to use dollars in their transactions, including wholesale and retail sales and foreign trade operations.
- Some businesses, such as tourism establishments, pharmacies, and clinics, will be permitted to accept cash payments in foreign currency.
- Direct payments in foreign currency will be approved for certain producers to enable the purchase of necessary inputs.
These measures expand foreign currency operations in a context of scarcity and contradict previous official statements that assured foreign currency would be obtained through exports rather than selling to the population.
A discourse that changes for convenience
The official rhetoric on dollarization has shifted.
In 2019, when asked if the country was reverting to dollarization, then-Economy Minister Alejandro Gil Fernandez responded, “This is not a dollarization of the economy.”
On October 10, 2020, a year after the launch of the MLC stores and ahead of monetary reforms, President Miguel Diaz-Canel admitted that it was necessary to “introduce a partial dollarization of the economy, which was neither desirable nor planned.” This marked a turning point, acknowledging partial dollarization.
Later, on July 22, 2023, Gil became more explicit: “There is a tendency toward dollarization, to paying and being paid in dollars, both among state economic actors and between state and private actors.” He also mentioned the existence of an “artificial demand for foreign currency” that required correction.
On December 20, 2023, Marrero went further, declaring: “The vision is not to dollarize the economy—on the contrary—but to transition to that path, partial dollarizations are necessary.” This narrative persists in 2024 as new steps are taken in that direction.
Consequences of dollarization for the economy
Economists have warned since 2019 about the consequences of dollarization for the Cuban economy: it distorts the pricing system (as prices are set in dollars, despite the Cuban peso being the official currency) and leads to a loss of monetary control, making it harder for the government to regulate the economy.
The coexistence of multiple currencies (Cuban peso, dollars, MLC) complicates economic management.
Cuban economist Ricardo Torres explained that “dollarization is more of a symptom than a problem in itself, though it has effects on the functioning of the economy. The Cuban government is now institutionalizing what is already happening in vast sectors of the economy due to the monetary collapse and the evident loss of trust in banks—but they’re doing it with a clear revenue-focused approach. The fact that the government takes hold of these currencies does not guarantee their proper use. In fact, evidence shows they are tremendously inefficient. For over two decades, they had stores selling in foreign currency stores and CADECA exchange houses, and that didn’t prevent the current crisis.”
“There’s nothing in the measures Marrero presented to the Cuban parliament that fosters production. These selective dollarization efforts create internal silos and exacerbate the economy’s dysfunctionality,” the economist concluded.
First published in Spanish by El Toque and translated and posted in English by Havana Times.
Read more from Cuba here on Havana Times.
