It seems that the adoption of cryptocurrencies in Latin America is moving full steam ahead. Following El Salvador, Cuba has in one fell swoop legalized bitcoin as a means of payment. A few other countries are either getting ready to follow suit, like Panama, or are already de facto using crypto, like Venezuela.
Recently, Cuba was swept by a wave of mass demonstrations against the ruling Communist Party. One of the protesters’ demands was to liberalize the Cuban economy, to allow private ownership of the means of production and market relations within the country. (Formally, the latter had already been permitted by the 2019 Constitution.)
And it must be said, the Cuban government surprisingly quickly made concessions to the protesters. The country introduced substantial market reforms, and on August 26, the Central Bank of Cuba stunned everyone even more. Its new regulation (https://www.gacetaoficial.gob.cu/sites/default/files/goc-2021-ex73.pdf) laid down rules for the use of virtual assets in commercial transactions and licensing of virtual asset service providers. “Financial institutions and other legal entities can use virtual assets for monetary and trade transactions between themselves and with individuals, as well as for exchange transactions and monetary obligation fulfillment,” added Central Bank representatives.
In simple terms, from September 15, Cuba will allow accepting bitcoin as a full-fledged means of payment. Although bitcoin is never actually mentioned in the document directly, it is about “virtual assets” in general. However, sources close to the Cuban government are explicitly talking about bitcoin.
We have carefully studied the original Central Bank of Cuba’s decree. It talks a lot about the country pledging to comply with international standards in detecting and preventing money laundering, terrorist financing, and the proliferation of weapons of mass destruction. But that seems like a bit of a smokescreen.
The central bank adds that its main task is to regulate the national currency and various payment systems to steadily develop the economy. It reaffirms that the official currency of the Republic of Cuba is the Cuban peso in the form of banknotes and metal coins.
Then, for some reason, there is part describing the dangers of cryptocurrencies due to their decentralized and volatile nature, ungoverned by the banking system. But the conclusion they reach is that the Central Bank of Cuba simply has to establish the rules for the country to regulate the use of virtual assets in commercial settlements and license providers of virtual asset services for financial transactions (those include exchange, collection, or payment activities both inside and outside the country).
The document gives a simple and surprisingly succinct definition that I just want to quote: “A virtual asset is a digital representation of value that can be sold or digitally transferred and used for payments or investments. The term includes various denominations used for the same purposes, such as “digital asset”, “cryptoasset”, “cryptocurrency”, “virtual currency”, and “digital currency”.
The Central Bank of Cuba further defines a virtual asset service provider as any natural or legal person that, in the course of commercial activities, participates in the exchange between virtual assets and legal tender, exchange between one or more forms of virtual assets, transfer, storage, management of virtual assets and so on (the list is quite long).
Here is the takeaway: The Central Bank out of the gate allowed cryptocurrency circulation and commercial use in Cuba (government agencies are still prohibited from adopting cryptocurrencies). The introduction of virtual asset regulation is the next logical step. Recently, we described the government approach in Belarus. There, the circulation of cryptocurrencies was also allowed (albeit not as a means of payment), but a legal and regulatory framework had to be created first. But since it was never actually delivered, a good initiative was ruined. The Cuban authorities went in the opposite direction.
This way, they seamlessly shifted the responsibility for using crypto in settlements within the state onto the citizens themselves. The document states: “Individuals assume the risks and responsibilities that arise in civil and criminal law as a result of dealing with virtual assets and virtual asset service providers that operate outside the banking and financial system, even if transactions with virtual assets between such persons are not prohibited.”
The swift adoption of cryptocurrencies as legal tender in the country is undoubtedly a very wise move, as it will allow the Cuban authorities to smooth out the population’s dissatisfaction with the state’s monetary policy during the transition period. After all, whatever this policy may turn out to be, in the context of the economic system breaking down, it will inevitably cause discontent within the country. And so the government disclaims responsibility – no one stops you from using the Cuban peso, but you yourself have chosen crypto well aware of its volatility and unpredictability.
By the way, the Cuban peso is not going anywhere: all settlements by government agencies (and between businesses, individuals, and government agencies) will continue to be carried out in national currency; the same applies to taxation.
Overall, it will be fascinating to look at the Cuban financial system in a few months. After all, such rapid adoption of cryptocurrencies by a single state is unprecedented. Let’s watch closely as to how successful it goes.