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Abstract
Conditions in Cuba's banking and financial sector have deteriorated significantly caused by a balance of payment crisis, de-dollarisation, the centralisation of hard currency transactions, and a fixed exchange rate regime. The crisis has negatively impacted the real economy, particularly the availability and cost of credit, the influx of foreign direct investment, and the country's international trade. The most visible consequence of the crisis is the growing scarcity of consumer goods, particularly in the case of imported products and inputs, that is affecting the nation's wholesale and retail distribution systems. Cuba responded to crisis by implementing a strict austerity programme, fiscal transformations, and institutional and structural changes. So far, these changes appear to be insufficient, and more profound economic transformations are required to surpass the crisis, while retaining the positive elements of the Cuban model, particularly on the social front.
Keywords: Cuba, Latin America, banking crisis, Cuban economy, economic policy, financial crisis
Introduction: Stylised Facts of the Crisis
Between 1961 and the 1980s, there was a single bank operating in the Cuban economy: the National Bank of Cuba (Banco Nacional de Cuba - BNC). The BNC was responsible for the traditional functions of a central bank, the regulation and funding of financial transactions in the commercial (or non-financial) sector through the provision of credit and investment activities. In the 1990s, the Cuban banking and financial sector experienced a drastic transformation. In the mid 1990s, Cuba's banking and financial sector was modernised; new financial services, new products, and new forms of intermediation were developed; and the sector became more closely integrated with global markets and institutions (González- Corzo 2004).
A two-level banking/financial system was implemented after the creation of a new central bank, the Central Bank of Cuba (Banco Central de Cuba - BCC), which replaced the BNC, and the expansion of the banking sector with the creation of several depository and non-depository institutions. The BCC is responsible for the conduct of monetary policy, the operations of the nation's internal payments system, and the supervision of eight state-owned commercial banks and the branches and affiliates of international financial institutions operating in Cuba.
Since 2008, conditions in Cuba's banking and financial sector have deteriorated significantly. In the middle of that year, Cuba temporarily suspended payments of...