An insightful new analysis of Cuba’s monetary, exchange rate, banking and balance of payments imbroglio by Pavel Vidal Alehjandro has just been published by the Real Instituto Elcano, Madrid. A bruef extract is included below.
The full document is available here: The Cuban Monetary and Financial Jigsaw Puzzle
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.
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. It is a veritable monetary and financial jigsaw puzzle. In order to do away with the dual currency and overcome financial imbalances, monetary policy must devalue the two domestic currencies. Cuba’s banks are facing a systemic liquidity crisis with no lender of last resort to help them out of it. 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. 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