Cuba: The Cash vs Digital Payment Dilemma Facing Businesses
HAVANA TIMES – Monday, August 17. Noon, Plaza de los Trabajadores. The sun beats down relentlessly on the dozens of people waiting outside the branch of the Banco de Crédito y Comercio located in this central area of the city of Camagüey, Cuba. Many have been there since the early morning hours or since the night before.
After so many hours, their exhaustion is compounded by an uneasiness that will soon turn into desperation. The bank is only open until three in the afternoon, and it is obvious that it will not be able to serve everyone there. Especially because most of them have come for the same reason: to withdraw cash. Inexplicably, this is the service that takes the longest at Cuban banks.
“What happens is that there aren’t enough tellers, and the few who are there are told to work slowly so they serve fewer customers, because the bank has very little cash on hand,” speculates a middle-aged woman, sweating profusely despite standing under an umbrella. Someone listening to her points to another reason for the delays: some tellers also take advantage of their shifts to withdraw money for friends and relatives, as well as for private businesses that pay them a commission. “I know the manager of a private business who has three or four tellers at different banks withdrawing money from his business cards. I don’t know how much they charge him to do it, but with commissions on the street as expensive as they are, he’d come out ahead at almost any price.”
Over the past two months, exchanging bank transfers for cash has become even more profitable than exchanging foreign currency. Most people engaged in this business now charge commissions of between 35% and 40%; that is, for every 10,000 pesos in banknotes, customers must transfer between 13,500 and 14,000 pesos. At the beginning of the year, the fee for this service was around 20%, and until 2025 commissions rarely exceeded 10%.
All forecasts suggest the gap will continue to widen, and some speculate that commissions could reach 100% by the end of the year. That is what a money changer told Camagüey resident Marianela Olivera a few days ago when she complained about the high rate he wanted to charge her for exchanging her digital money. “The problem is that with the latest salary increases, they’ve put too much money onto people’s cards, much more than the amount of banknotes in circulation,” the young man argued.
Not Enough Banknotes
During August, state employees and retirees have been receiving their new salaries and pensions on their cards, including the increase decreed by the government at the end of June. In its first year alone, the measure will put more than 15 billion additional pesos into circulation, a significant amount for a country where year-on-year inflation rose above 20% again a couple of months ago.
The decision is even more questionable because that money will exist almost entirely in digital form. For years, the government has not issued large quantities of banknotes, either to carry out the normal process of replacing worn currency or to meet the increased demand for cash resulting from inflation. Independent economists such as Pavel Vidal, a professor at Javeriana University in Cali, Colombia, had for years recommended printing higher-denomination banknotes, until recently the Central Bank of Cuba refused to do so, offering explanations as unconvincing as the claim that such an investment was unnecessary.
It was not until April of this year that the Central Bank finally introduced new 2,000- and 5,000-peso banknotes ($3 – $7.50 USD), intended to replace their 500- and 1,000-peso counterparts in wholesale trade and in the accumulation of funds by the private sector. Widespread distrust of Cuba’s banking system—which in the recent past devalued the national currency and arbitrarily withheld foreign currency deposited in personal and business accounts—is behind the determination of these “new private economic actors” to keep their reserves exclusively in cash.
“It’s certainly true that some business owners take advantage of their cash operations to evade taxes, but that’s not the main reason there is so much resistance to digital currency. The biggest problem is that this money is only useful for paying taxes and services such as water and electricity. Everything else, from suppliers to workers’ wages, has to be paid in cash. On this issue, we entrepreneurs are caught between a rock and a hard place. If I take them [bank transfers], I’m screwed; if I don’t, they could even shut down my business,” explained the owner of a bar-restaurant in the city of Camagüey. As a compromise, several months ago he instructed his employees to accept up to 1,000 pesos in digital payments per customer.
It is a vicious circle that entrepreneurs such as Mailet Padilla, the owner of a boutique in the same city, have been criticizing for some time. But instead of seeking a solution, the authorities insist on blaming private businesses for their reluctance to accept digital money, she complained in a recent post.
David Fernandez, an entrepreneur from the eastern province of Granma, says the issue demonstrates the preferential treatment received by the highest-grossing private companies, particularly the large importers based at the port of Mariel, which conduct their sales exclusively in cash, whether in dollars or Cuban pesos. Meanwhile, “the small merchant, the one who sells directly to the people, is forced to accept payments by bank transfer.”
“If, despite this situation, the bank allowed people to withdraw in cash the money they legitimately have deposited in their accounts, the problem of accumulating balances from transfers would be much less serious. But that isn’t always the case either,” he said.
Beyond the wishful thinking that often characterizes the Cuban authorities, the fundamental cause of the conflict is a circumstance that is virtually impossible to resolve under current conditions: the chronic liquidity shortage afflicting the island’s economy. Even the Central Bank has had to acknowledge it. An institutional statement published shortly after the issuance of the 2,000- and 5,000-peso banknotes noted that cash hoarding “is a consequence of deeper structural problems, distrust in institutions, informality and monetary instability, not the cause of the shortage of banknotes itself.”
As early as mid-2023, economist Pedro Monreal, a respected expert who has served as an adviser to international organizations such as UNESCO, pointed out that the shortage of physical currency would be a difficult problem for Havana to solve. Printing banknotes appeared to be the ideal solution, but also the most difficult to implement because of the resources it requires.
On average, each new banknote requires an investment of between 5 and 9 US cents, which in Cuba’s case means that lower-denomination bills have a face value below their production cost. The peso’s devaluation since then has made that relationship even more unfavorable. Today, all banknotes with denominations below 100 pesos are worth more as paper than as currency, and that trend only appears likely to deepen. The issuance of higher-denomination banknotes, which has clearly been limited, amounts to little more than a stopgap for a crisis with much broader implications.
With no definitive solutions in sight, the authorities’ only option is to continue pressuring the private sector to accept as many bank transfers as possible and help facilitate payments to groups such as retirees and people with disabilities. Entrepreneurs, meanwhile, will have to continue performing accounting gymnastics to make the numbers work despite the digital money they are forced to accept. And caught between the two, ordinary Cubans will have no choice but to once again spend the night outside banks every month or turn to someone who exchanges bank transfers for cash, just to be able to take home at least part of their own money.