Friday, August 28, 2015

Bitcoin comes to Cuba. Could it help end the country’s crazy two-currency system?

Bitcoin comes to Cuba. Could it help end the country's crazy
two-currency system?
WRITTEN BY Tim Fernholz
August 27, 2015

The first reported bitcoin transactions between the US and Cuba mark the
latest innovation brought to the island's complicated economy, as the
two countries normalize relations.
Fernando Villar, the Cuban-American founder of a group called
BitcoinCuba, told Crypto-Currency News that he made the transaction this
week using public wi-fi networks that Cuba's socialist government has
started installing in public parks.
"The future for Bitcoin in Cuba is promising, but it's going to take
some time and effort," Villar told CCN. "Cubans are only now being
connected through public Wi-Fi, which is somewhat cost prohibitive at $2
an hour, with the average Cuban salary about $20 a month. … [but] it's
only a matter of time before they also start receiving money through
those networks."
The barriers of cost and investment may well be surmounted with
time—internet infrastructure is one of the few sectors where the US
trade embargo against Cuba has been relaxed and American and Cuban
entities can begin doing business with one another. That leaves
political barriers as the primary challenge for bitcoin in Cuba. This is
no small obstacle in a country where the government only began gradually
relaxing control over the economy in recent years.
One area where controls remain firm is currency. Cuba has a unique
dual-currency system: There is one regular peso for mass use, and a much
more valuable peso that is convertible to foreign currency, known as the
CUC ("kook"). The regular peso trades at about 26 to the dollar, while
the CUC trades one-for-one to the dollar, but the government takes a
10-cent "dollar penalty" and a 3-cent conversion fee. Some products,
even some necessities, can only be bought with CUCs.
By imposing these capital controls, the government boosts its
much-needed foreign currency reserves each time a foreigner changes
money or a Cuban expatriate remits money to family members back home.
The controls also make it more difficult for Cubans to leave the island
with their wealth.
Of course, one of bitcoin's most powerful features is its ability to
avoid traditional capital controls—that's why the currency is such a big
hit in China, where users could move money outside of the government's
watchful eye, despite constant threats of a crackdown.
If bitcoin were to become more broadly adopted in Cuba, it could open up
a whole new range of activities. Instead of bringing down large amounts
of physical cash, Cuban Americans seeking to invest in, say, Cuba's hot
real estate market, could do the transaction in bitcoins. And instead of
winding up with a ton of dollars they would have to convert or stick in
their mattress, Cuban recipients of bitcoin could take that money out of
the country and convert it to another currency without penalty.
Despite a series of government announcements that the dual-currency
system will come to an end—these stretch back to 2013—it has yet to
happen. Officials say the cautiousness is meant to avoid a run on the
currency; observers say it's because the abrupt transition might
threaten the government's control of the economy.
In any case, currency unification is seen as a key component of Cuba's
economic reforms by all parties; the costs and complications of two
kinds of money are dreadfully inefficient. If the proliferation of
bitcoin hastens that process, it will be a win for strange
bedfellows—the Obama administration's hope that normalization will spur
reform and the bitcoin community's push against centralized economic

Source: Bitcoin comes to Cuba. Could it help end the country's crazy
two-currency system? - Quartz -

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