As Cuba Advances Toward a ‘Cashless’ Economy, Entrepreneurs Prepare for Change According to Reuters

By Nelson Acosta and Anett Rios

HAVANA – In early August, Cuba announced significant advancements towards electronic banking and a "cashless" society, prompting small businesses across the country to adapt quickly to the changes.

A major concern for many entrepreneurs was the introduction of a daily limit of 5,000 pesos (approximately $20) for cash withdrawals, part of a series of government measures aimed at encouraging electronic transactions through transfers, online payments, and bank cards.

Cuban central bank officials indicated that these changes are necessary to address a cash shortage, exacerbated by a plummeting peso and rising consumer prices, which have significantly depleted bank reserves and ATMs.

"The demand for cash was growing faster than what we could provide to our bank branches," stated Alberto Quinones, vice president of the Cuban central bank. The new regulations are set to be implemented gradually over the next six months, according to officials.

Yulieta Hernandez, founder and manager of Pilares Construction, a small business in Havana employing 60 people, expressed her concerns about the impact of these changes. "We understand there is a crisis and the need for banking, but this is our money," she said, noting that while her business has adopted electronic banking, she often requires quick access to cash for emergencies on construction sites.

Cuban entrepreneurs have already been navigating numerous challenges, including unreliable electricity, internet access, widespread fuel shortages, and hurdles in legally exchanging local currency for the dollars needed for imports.

Just three days after the new rules took effect, Hernandez reported further complications: many of her suppliers, who had previously been open to electronic transfers, were reverting to cash-only payments out of fear of losing access to the cash they require to operate. This outcome contradicts the intent of the new regulations.

The situation leaves businesses like Pilares Construction caught in a dilemma — needing cash to function while facing restrictions on withdrawals from their accounts. "Right now the effect … is like paralysis," Hernandez remarked, adding that many business owners are halting their investments and awaiting a resolution to the challenges posed by the new rules.

Five entrepreneurs interviewed voiced concerns that these measures might discourage investment in private businesses that provide essential goods and services, especially in areas where state-run enterprises have struggled.

GROWING PAINS

Privately owned businesses have re-emerged in Cuba over the last two years. Following a ban by Fidel Castro that lasted decades, the government has since approved thousands of small companies in various sectors.

For many Cubans accustomed to communism since Castro’s 1959 revolution, this shift represents a significant cultural change. Leonardo Rodriguez, who operates Kaibocu, a small business in Havana that produces processed foods, noted that he and several other entrepreneurs began utilizing electronic banking prior to the recent changes to comply with evolving tax laws tied to the expanding private sector.

However, for many smaller businesses and family-run stores in Cuba, the formal aspects of business, such as tax payments, remain relatively new concepts. Rodriguez explained that many Cubans have conducted business informally and may not fully understand the importance of declaring sales or income.

Cuban officials have emphasized that the new banking measures are essential for ensuring transparency, recording transactions, and ensuring tax compliance. To facilitate the transition, the government in Santiago de Cuba has even enlisted local members of "computer clubs" to educate the public on the basics of mobile payment systems.

Yet, Ronald Venero, a 34-year-old street vendor in Havana selling fruits and vegetables sourced from nearby farmers, highlighted the disconnect between urban businesses and rural producers. Many farmers, he explained, continue to transact in cash, resisting the shift to electronic payments.

"The farmers who come to sell us merchandise deal in cash," he shared, reflecting the ongoing challenges in transitioning to a cashless economy. "You tell them that you are going to pay by card or a transfer and they tell you no."