Bitcoin comes to Cuba. Could it help end the country’s crazy two-currency system? |#Bitcoinby Tim Fernholz |
The first reported bitcoin transactions between the US and Cuba mark the latest innovation brought to the island's complicated economy, as the two countries normalize relations.
Fernando Villar, the Cuban-American founder of a group called BitcoinCuba, told Crypto-Currency News that he made the transaction this week using public wi-fi networks that Cuba's socialist government has started installing in public parks.
“The future for Bitcoin in Cuba is promising, but it’s going to take some time and effort," Villar told CCN. “Cubans are only now being connected through public Wi-Fi, which is somewhat cost prohibitive at $2 an hour, with the average Cuban salary about $20 a month. ... [but] it’s only a matter of time before they also start receiving money through those networks.”
The barriers of cost and investment may well be surmounted with time—internet infrastructure is one of the few sectors where the US trade embargo against Cuba has been relaxed and American and Cuban entities can begin doing business with one another. That leaves political barriers as the primary challenge for bitcoin in Cuba. This is no small obstacle in a country where the government only began gradually relaxing control over the economy in recent years.
One area where controls remain firm is currency. Cuba has a unique dual-currency system: There is one regular peso for mass use, and a much more valuable peso that is convertible to foreign currency, known as the CUC ("kook"). The regular peso trades at about 26 to the dollar, while the CUC trades one-for-one to the dollar, but the government takes a 10-cent "dollar penalty" and a 3-cent conversion fee. Some products, even some necessities, can only be bought with CUCs.
By imposing these capital controls, the government boosts its much-needed foreign currency reserves each time a foreigner changes money or a Cuban expatriate remits money to family members back home. The controls also make it more difficult for Cubans to leave the island with their wealth.
Of course, one of bitcoin's most powerful features is its ability to avoid traditional capital controls—that's why the currency is such a big hit in China, where users could move money outside of the government's watchful eye, despite constant threats of a crackdown.
If bitcoin were to become more broadly adopted in Cuba, it could open up a whole new range of activities. Instead of bringing down large amounts of physical cash, Cuban Americans seeking to invest in, say, Cuba's hot real estate market, could do the transaction in bitcoins. And instead of winding up with a ton of dollars they would have to convert or stick in their mattress, Cuban recipients of bitcoin could take that money out of the country and convert it to another currency without penalty.
Despite a series of government announcements that the dual-currency system will come to an end—these stretch back to 2013—it has yet to happen. Officials say the cautiousness is meant to avoid a run on the currency; observers say it's because the abrupt transition might threaten the government's control of the economy.
In any case, currency unification is seen as a key component of Cuba's economic reforms by all parties; the costs and complications of two kinds of money are dreadfully inefficient. If the proliferation of bitcoin hastens that process, it will be a win for strange bedfellows—the Obama administration's hope that normalization will spur reform and the bitcoin community's push against centralized economic control.
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