Dollarization in Cuba? A proposal for the future (I)
Since 1959, the Cuban regime has maintained that a centrally planned and controlled economy is synonymous with social justice. Under this premise, direct state intervention in prices and the national currency was presented as a guarantee of well-being for the people. However, after more than six decades of economic experimentation, reality has belied that promise. Instead of prosperity, price control and currency manipulation policies have unleashed chronic inflation, a severe depreciation of the population's purchasing power, and the flourishing of a parallel market that hinders access to basic goods. This article analyzes the historical evolution of these policies in Cuba, their economic consequences—uncontrolled inflation, chronic shortages, widespread impoverishment—and the ideological logic that underpins them, highlighting how they have served as tools of social control and erosion of citizen autonomy. Finally, it presents a structured critique of the current critical economic situation, laying the groundwork for justifying the idea of dollarizing the Cuban economy as a possible way out, which will be developed in future installments.
Historical background: from revolutionary control to chronic shortages
Before 1959, Cuba had one of the highest levels of economic development in Latin America. The Cuban currency had real purchasing power and markets operated with relative freedom. After the Revolution, with the establishment of the Castro government, the state took absolute control of the economy, justifying this in the name of stability and equitable distribution of wealth. In practice, this centralized model quickly led to profound economic distortions.
· The 1960s: institutionalization of rationing and price controls: Faced with the first signs of shortages and conflict with the United States, in 1962 the revolutionary government introduced the Libreta de Abastecimiento, a rationing system that guaranteed very low prices for a limited basic basket of goods. This measure, conceived almost as a wartime economy, was intended to ensure the affordability of food for the entire population in the midst of the US embargo. At the same time, state price controls were introduced on virtually all goods and services. The regime set prices below market value for many essential products, which in the short term sustained the image of “popular prices,” but in the long term discouraged production and caused chronic shortages. As production costs were not covered, many goods ceased to be produced or circulated only through the informal (illegal) market, where prices were much higher. Thus, in the early years of Castroism, the foundations were laid for a dual economy: an official sector with rationing and artificially low prices, but without sufficient supply, and a clandestine sector where supply existed but at prohibitive costs for the majority.
· 1970s-1980s, Soviet dependence and internal continuity: during the following years, the survival of the Cuban model rested on subsidies from the Soviet Union. Domestic prices remained controlled by decree, while the ration card continued to be a lifeline to prevent famine. The economic philosophy did not change: money and the market were viewed with ideological suspicion, and an unrealistically overvalued official exchange rate was maintained. There was, however, a relative fictitious stability thanks to the flow of oil and credit from the Soviet bloc, which masked the inefficiencies. With the fall of the USSR in 1991, Cuba suddenly lost that support, ushering in the Special Period, an unprecedented economic crisis on the island.
· The 1990s, dual currency and timid market reforms: Faced with acute shortages in the 1990s, the government was forced to introduce pragmatic changes. In 1993, it legalized the use of the US dollar to channel remittances and encourage the inflow of foreign currency. Shortly thereafter, in 1994, it created the convertible peso (CUC), an artificial currency parallel to the Cuban peso (CUP), with a fixed parity to the dollar. This marked the birth of monetary duality: two currencies in circulation—the CUP for local payments and state salaries, and the CUC (and US dollars) for tourism, remittances, and special stores. At the same time, “free” agricultural markets were authorized where farmers could sell surpluses at uncontrolled prices, albeit under surveillance and with sporadic caps. These palliative measures halted the immediate collapse, but created new distortions: ordinary Cubans began to experience two separate economies, one in which they earned wages with virtually no real value, and another in which they needed hard currency to purchase basic goods outside the meager state rationing system.
· 2000-2020, persistence of controls and attempts at unification: in the 2000s, the government alternated between attempts at reform and setbacks. In the middle of that decade, it withdrew the physical dollar from circulation (imposing the CUC as a substitute) and maintained tight price controls in most sectors. The ration book remained in place but with fewer and fewer products, while the black market flourished as a natural response to shortages. In the second decade of the century, under Raúl Castro's rule, the need to eliminate the dual currency system was officially recognized. After years of delayed announcements, in January 2021, the government finally implemented currency unification, eliminating the CUC and establishing the CUP as the sole official currency. This decision—called “Tarea Ordenamiento” (Ordering Task)—sought to simplify the financial system and reduce the distortions accumulated over years of dual currency. However, far from achieving stability, unification was accompanied by a sharp devaluation: the official exchange rate went from 1 USD = 24 CUP to 1 USD = 120 CUP overnight. This caused domestic prices of imported goods to skyrocket, exacerbating shortages and dramatically increasing the cost of living. Given that Cuba imports a large portion of its food and basic products, the massive devaluation without sufficient foreign currency reserves resulted in immediate inflation and a severe loss of purchasing power for ordinary Cubans.
Alongside monetary unification, the government deepened other controversial measures. It expanded the network of Freely Convertible Currency (MLC) stores, establishments where purchases can only be made with foreign currency (dollars or euros) using electronic cards linked to hard currency bank accounts. These stores sell food, toiletries, and basic necessities that are largely absent from the retail network in pesos. For the majority of the population, who earn their income in CUP and do not have regular access to foreign currency, MLC stores represent forbidden goods, beyond their reach. The result has been increased inequality and social frustration: the market has become segmented between a minority with access to dollars (via remittances, tourism, or the privileged sector) and the majority who depend on an increasingly devalued peso. In short, the model that promised to protect the well-being of all has ended up raising barriers to progress, restricting the population's access to essential goods.
Throughout these decades, the Cuban state has also periodically resorted to unilateral monetary changes (such as the confiscation of cash in 1961-63, forced exchanges of pesos for new denominations, etc.) and tight controls on the official exchange rate, all with the aim of glossing over the economic reality and containing imbalances through administrative measures. These monetary manipulations attempted to hide underlying problems—such as fiscal deficits financed by printing money—but in the long run only further destabilized the economy and undermined confidence in the national currency. The dual currency period (1994-2020) was the ultimate expression of this financial engineering: it allowed the government to capture dollars from remittances and tourism through the CUC, while paying meager wages in CUP, creating an accounting illusion of balance. But on the street, the CUC came to be worth much more than the CUP, and then, after 2021, the dollar skyrocketed on the informal market, multiplying the official exchange rate several times over, a sign of the total loss of credibility of the Cuban peso.
In short, Cuba's historical evolution from 1959 to the present day shows one constant: widespread price controls and currency manipulation as pillars of economic policy. Both instruments, supposedly aimed at protecting the most vulnerable, have failed miserably in their stated objective. On the contrary, they have generated distortions that persist over time: chronic shortages, repressed and then unleashed inflation, black markets, and productive stagnation that keeps the country in misery. Far from putting Cuba on the path to development, these strategies have undermined economic efficiency and plunged the population into permanent precariousness.
Economic consequences: inflation, shortages, and impoverishment
Price controls and currency controls have had devastating effects on the Cuban economy. Their main negative economic consequences can be summarized as follows:
Uncontrolled inflation: State intervention has led to chronic inflation that erodes the value of the Cuban peso on a daily basis. Following the 2021 currency unification, official annual inflation hovered around 70%, and although there was an apparent moderation in 2023-2024, the figures remain high (around 30% year-on-year) and underestimated by statistics. This means that the prices of basic goods have multiplied, hitting those living on fixed wages the hardest.
Loss of purchasing power and depreciated wages: Cubans' incomes have been devalued to such an extent that today they barely cover the most basic needs. The inflationary process, coupled with the “Tarea Ordenamiento” (Ordering Task), drastically reduced real purchasing power. According to economist Pedro Monreal, inflation in April 2025 reached 18.57% year-on-year, highlighting a situation of stagflation—high inflation with a stagnant economy—that limits recovery and exacerbates poverty on the island. The cost of basic foodstuffs has become prohibitive: the latest year-on-year food inflation figure stood at 17.26%, dramatically increasing the daily cost of household food. Meanwhile, real wages have fallen; the share of workers' wages in GDP has fallen significantly since 2021, reflecting how the population has absorbed the economic adjustment.
In plain terms, the average Cuban is becoming poorer in their own currency. Chronic shortages and parallel markets: setting prices below costs has led to a decline in the supply of almost all goods. Domestic production, especially of food, is stagnant or in decline, as there are no incentives to produce goods that will have to be sold at a loss under price controls.
The result is empty shelves in official stores and long queues for rationed products. Consumers, desperate to meet their needs, are forced to resort to the black market, where prices are much higher and there is no consumer protection whatsoever. This informal circuit is often supplied by diverting products from the state sector (internal corruption) or through illegal imports, and is governed by the law of supply and demand that the government sought to abolish. Thus, “real” inflation manifests itself in the informal market, reflecting the disconnect between state policies and everyday economic reality.
Impoverishment and growing inequality: the combination of inflation and shortages has resulted in widespread impoverishment of the population. Those who depend exclusively on a state salary in pesos face a dramatic loss of purchasing power. Many Cubans have fallen into extreme poverty or depend on remittances from abroad to survive. At the same time, distortions have increased inequality: those with access to foreign currency (through relatives abroad, tourism, or dollar-denominated activities) are better able to cope with inflation by shopping in MLC stores or informal markets, while the most vulnerable are left behind. MLC stores, as mentioned, formalize this gap by providing basic necessities only to those with hard currency. In today's Cuba, having dollars or euros marks the difference between hardship and the ability to consume basic goods, a phenomenon deeply contrary to the egalitarian discourse of the Revolution.
Corruption and institutional inefficiency: the persistence of rigid controls has also fostered corruption and the underground economy within the institutions themselves. To circumvent price caps and make profits, producers, intermediaries, and even officials engage in illegal practices: diversion of goods, bribery, clandestine sale of state inventories, etc. Parallel distribution networks have been created and are tolerated unofficially, without which daily life would be impossible, but which undermine legality and public ethics. This situation erodes public confidence in institutions and creates a vicious circle of shortages and speculation. Furthermore, the lack of transparency and effective oversight mechanisms exacerbates the problem, leaving consumers unprotected and with no options beyond daily economic survival in the informal sector.
In short, the price controls introduced in the 1960s have had the opposite effect to that intended. Although they were justified as measures to protect consumers and ensure fairness, in practice they have led to shortages, inflation outside the official market, and widespread corruption. The Cuban economy operates with severe distortions: market signals are broken, production does not meet demand, and the population suffers from growing shortages. The lack of incentives to produce and the continuous manipulation of economic variables have prevented the development of an efficient and sustainable market, deteriorating the well-being of Cubans. Even state-owned enterprises are suffering: following monetary unification, more than 500 state-owned enterprises reported losses (“red numbers”), unable to balance their accounts in the new context of inflation and devaluation. Instead of correcting the crises, interventionist measures have deepened imbalances, plunging the country into a permanent state of precariousness.
Ideological logic: economic control as a tool of power
To understand why the Cuban government has persisted with these failed policies, it is necessary to explore the ideological logic that underpins them. In communist doctrine, especially in its Soviet variant that inspired Castroism, money and the free market are viewed with suspicion. From its earliest formulations, Marxism-Leninism has conceived of money not as a neutral and essential element of economic organization, but as a mechanism inherent to capitalism and, therefore, a tool of class domination. Under this conception, eliminating or minimizing the role of money in society is considered a step toward equality. Fidel Castro adopted this view early on: in the early years of the Revolution, he promoted policies to reduce the use of money in everyday transactions and eliminate free market structures, with the aim of creating a command economy that would distribute resources “equitably.”
In practice, communist regimes—and Cuba is no exception—have used the manipulation of money and prices as instruments of political and social control. These are not just tools of economic management, but deliberate mechanisms to limit the economic autonomy of individuals and dismantle any hint of a capitalist system within their borders. Keeping the population busy with daily subsistence, without savings or capital of their own, reduces their capacity for independent organization and makes them more dependent on the state. In this sense, inflation itself has been used as a weapon: by printing money and generating price increases, the state undermines the value of private savings and dilutes the wealth of citizens, preventing them from accumulating capital. In the Soviet Union, for example, the massive issuance of unbacked rubles was used to erode the foundations of the market and pulverize purchasing power as a form of control. Cuba replicated this approach; in fact, as early as the 1960s, Fidel Castro implemented drastic monetary changes (such as the elimination of the old peso and the issuance of a new one) with the conviction that money should be under absolute state control.
This ideological vision led to a hyper-centralized economy where the state determined what, how, and at what price goods were produced and distributed, restricting the use of money to strictly supervised transactions. Price and wage controls became permanent norms to prevent the fluctuations inherent in a free market, which were considered undesirable because they could empower private actors. Thus, limiting individual enrichment and financial autonomy was not a side effect, but to some extent a deliberate goal: unable to prosper through their own initiative, citizens had to depend on the state for their livelihood, which reinforced political control. This “coercive paternalism” fits in with the Castro logic that the Revolution provides what is necessary (albeit in insufficient quantities) and, in return, demands loyalty and submission. Any attempt to circumvent the system—from freely negotiating prices to saving dollars at home—was branded as “counterrevolutionary activity” or “illicit enrichment,” with punishments ranging from confiscation of property to prison terms in the past. The economy, in short, has been an ideological battleground: sacrificing economic efficiency was considered an acceptable price to pay for maintaining communist orthodoxy and social control.
This ideological framework explains why, despite obvious economic dysfunction, the regime has resisted liberalizing prices or relinquishing its monetary monopoly. Reforms have been limited and always viewed with suspicion. Whenever reality has forced adjustments (as in the 1990s), the government has tried to keep its hand on the wheel, fearing that economic freedom would lead to political freedom. Ultimately, price controls and currency manipulation have served the dual purpose of reinforcing the revolutionary narrative (of fighting “capitalist speculation” and protecting the poor) and keeping citizens economically dependent, without the tools to challenge the state's hegemony.
Current stagnation and prelude to dollarization
Cuba in 2024-2025 is in the midst of one of its worst economic crises since the Special Period. All the problems described above have deepened in recent years, creating a situation of stagflation and social unrest. Despite some cosmetic measures, the authorities have failed to tame inflation or revive production. Every Cuban sees on a daily basis how their money is worth less and how they must spend an increasing portion of their income on food, cooking gas, and other essentials, often at astronomical prices on the informal market.
Faced with popular discontent over inflation and shortages, the government has responded with more controls and administrative measures rather than changing course. A recent example is Resolution 225 of 2024 from the Ministry of Finance and Prices, which imposed maximum retail prices on six basic products, including chicken, oil, and powdered milk. This initiative sought to curb excessive price increases in these sensitive areas. However, as was to be expected, it has also drawn criticism from both private entrepreneurs and consumers, as it affects profitability and discourages supply, risking further shortages of these same products. In essence, it is a repeat of the failed formula: attempting to contain inflation by decree. These recent price controls are in addition to financial restrictions such as the so-called “bankarization” (which limits the use of cash), all measures aimed at reducing demand rather than encouraging supply.
The current economic outcome is devastating: domestic production, especially of food, remains stagnant or declining, given the lack of inputs and the low incentive to produce under draconian controls. Agriculture, for example, suffers from structural problems of low productivity and lack of resources, making it unlikely that it will be able to lower food prices by increasing supply while the current communist model remains in place. Without sufficient production or access to foreign currency to import, the total supply of goods remains well below demand. This prolongs inflation and shortages indefinitely. At the same time, the Cuban peso has continued to lose value against the dollar on the informal market, reflecting a lack of confidence. At the beginning of 2023, the informal dollar was around 120-150 CUP, but by the end of 2024 it exceeded 200 CUP, demonstrating the constant devaluation of the national currency. In practice, Cuba is experiencing de facto dollarization: most relevant transactions (sales of houses, cars, many imported foods, and even family savings) occur in dollars or foreign currencies because no one wants the depreciated peso. The Cuban economy is largely dollarized because the peso has ceased to fulfill the basic functions of a national currency. People prefer to reference the value of things in hard currency, and the Cuban state itself encourages this phenomenon by selling goods in dollars (MLC stores) to attract foreign currency.
Faced with this extreme situation, there is a growing conviction that Cuba needs radical structural change in its economic policy. The measures applied so far—more control, more restrictions—have only deepened the disaster. Dolarization of the Cuban economy is therefore emerging as an increasingly discussed proposal in circles of economists and opponents, and as a possiblelifelineto halt the inflationary spiral. What does this idea consist of? How can it be implemented? Are there any historical precedents? What implications could it have? These are some of the questions that will be addressed in the next installments