Following the approval of Decree Law 113 by the Council of State and its publication in the Official Gazette, a new mechanism for the management, control, and allocation of foreign currency has been established in Cuba. This is a fundamental measure on the path to macroeconomic stabilization, which was envisaged by the Government Program to eliminate distortions and boost the economy.
Supported by complementary regulations (from the Ministry of Economy and Planning, which lays the foundations for this mechanism, and from the Central Bank of Cuba), the necessary legal framework has been established for the full implementation of all economic activities that aim to increase foreign currency revenues and ensure that these are used as efficiently as possible.
According to the explanation given by the president of the Central Bank of Cuba (BCC), Juana Lilia Delgado Portal, this is a higher-level legal regulation that updates the previous provisions, which limited transactions in the economy to Cuban pesos. Now, the possibility of other currencies being legal tender, alongside the Cuban peso, is being introduced so that they can be used in foreign currency collection and payment transactions between economic actors based in Cuba.
This applies to Cuban, foreign, and mixed legal entities, as well as individuals who carry out productive activities or any type of economic transaction involving a payment instrument denominated in foreign currency. It also applies to international economic association contracts, local development projects, international cooperation projects, and international organizations.
The Ministry of Economy and Planning (MEP) will authorize foreign currency transactions that may be carried out in the country, governed by a set of procedures that will prioritize export activities, production linked to the export sector, activities that allow for import substitution, and others that contribute to the primary objective of increasing foreign currency income.
Since the presentation of the Macroeconomic Stabilization Program, it has been recognized that in order to revive the economy, part of it must be allowed to operate in foreign currency. Therefore, what has now been approved is precisely the legal framework under which these transactions must be carried out.
The first thing this kind of "umbrella facility" does—led by the MEP as the overseer and controller of economic policy, as well as by the BCC as the overseer of monetary and credit policy—is to regulate which part of the economy will operate with foreign currency transactions. It will also establish the factors involved in that segment of economic activity, how each of them participates specifically, and how they benefit.
Sobre la norma que atañe al MEP, su titular, Joaquín Alonso Vázquez, enumeró cuatro objetivos fundamentales:
Regarding the regulation concerning the MEP, its head, Joaquín Alonso Vázquez, listed four fundamental objectives:
- To organize the system for the management, control, and administration of foreign currency.
- To regulate foreign currency transactions based on existing foreign currency accounts or through foreign currency access capacity allocations (ACAD). In other words, it determines how foreign currency is allocated—by the state—to those subject to the Plan, who are not exporters but have to import for the economy. It specifies how to access it, how to request it, and even determines its validity, i.e., how long the allocation can be enjoyed.
- Define how to legally access foreign currency.
- Specify which transactions within the economy will be conducted in foreign currency.
Referring to the principles of the regulation, he reiterated that the key is to stimulate export revenues. "It is not about turning over the currency that already circulates in the national economy, but rather stimulating exports, so that currency enters from abroad."
It also encourages import substitution. "There are many areas where it is preferable to buy from domestic industry rather than import the same thing from abroad. This boosts two players: the buyer and the producer."
Another principle mentioned by the Minister is to encourage the creation of mechanisms for legal access to foreign currency, "something that is closely linked to mechanisms for accessing currency trading in a foreign exchange market that is also undergoing transformation."
In addition, other activities that generate foreign currency income will be encouraged. Among these, he mentioned e-commerce mechanisms with payment abroad.
In line with these principles mentioned by the Minister, the legal framework also clarifies the different legal sources of foreign currency income, as well as the procedures for entities authorized to carry out these transactions to retain a significant portion of the foreign currency generated, so as to guarantee the liquidity of their accounts and allow them to dispose of them freely, especially to reproduce their core activity or others that allow them to multiply their income.
What does the Central Bank of Cuba regulate in this process?
The Minister President of the BCC explained that the first thing to be defined is the operation of foreign currency accounts: "how these accounts should be used, who can have them, and for what purposes; because once they are authorized by the MEP, a foreign currency account must be opened in order to execute transactions, and that requires a license issued by the BCC."
There is a second rule that regulates the procedure for what is called the Foreign Currency Access Capacity Allocation (ACAD, in Spanish), which is an authorization issued by the MEP to allocate certain amounts to economic actors who do not generate them and who require them for priority activities. Its beneficiaries will be able to purchase foreign currency from the Central Bank with Cuban pesos, applying the official exchange rate in force.
"This will allow for the replacement of what was previously called liquidity capacity accounts (cl). What happens is that now the rule clearly defines the scope of this instrument and makes it clear that it is an authorization to access those foreign currencies, not a means of payment, which at the time was a distortion that damaged the economy," said the Minister President of the BCC.
TOWARDS THE EXCHANGE MARKET
According to the authorities, the measures conceived in the new mechanism are aimed at improving the organization and administration of foreign exchange transactions within the economy.
In the short term, it will be possible to see how this operation is established and consolidated, on a temporary and partial basis; but at the same time, the State will increase its regulatory capacity to limit it to strategic productive sectors that promote economic recovery and increased foreign currency revenues.
This should help to establish the macroeconomic and financial conditions necessary to shift these foreign currency transactions towards the restoration of the role of the Cuban peso and its convertibility in a new, transformed foreign exchange market, based on measures that must be implemented in parallel with this mechanism for the management, control, and allocation of foreign currency under Decree Law 113.
