In May Cuba’s President, Miguel Diaz-Canel, expressed interest in cryptocurrency to help the nation’s struggling economy in wake of the Covid-19 pandemic.
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Yesterday it was announced that Cuba would follow through on recognizing and regulating cryptocurrencies for payments in a Central Bank publication. The proposed resolution would create rules for the use of such currencies and establish ways to give licenses to crypto service providers.
The use of cryptocurrency has been amplified in the island nation as a result of embargo rules that have made it harder to use the dollar in the country. A potential motive for the transition to the use of cryptocurrency could stem from sanctions and embargos from the United States that have been in place for decades.
In 1962 President John F. Kennedy placed embargoes on trade between the United States and Cuba which are still in place today. These embargoes were further strengthened during Trump’s Presidency. Some of these restrictions impose requirements and limitations on remittances, making it very hard for Cuban Americans to send money to loved ones back home.
With the dollar’s global dominance, such restrictions make it harder for economies in countries like Cuba to operate. But Bitcoin and other cryptocurrencies provide an easy way around these issues.
An example of a country using Bitcoin to avoid economic sanctions is Iran. Iran has created its own Bitcoin mining industry that now makes up roughly 4.5% of all mining. The Bitcoin created in this process allows the country’s economy to continue running. Cuba and Iran are two of the most heavily sanctioned countries by the United States in the world.
Other countries with such sanctions and embargoes may begin to take notice of cryptocurrency as a way around these issues, lessening the United States’ ability to control foreign economies, for better or worse.
Aside from sanction and embargo issues, the use of cryptocurrency also bypasses the fees and cost of sending money. According to the World Bank, the average remittance fee to send $200 from the United States to Cuba is about $20.00, or 10% of the total transfer. This causes Cuba’s economy to miss a minimum of 10% of the incoming money that could help to fuel the economy.
Should counties like Cuba begin to use cryptocurrency these issues would effectively be resolved. El Salvador, who has already passed a bill that will make Bitcoin legal tender by September 7th, also wants to encourage remittance payments through crypto.
According to the World Bank, personal remittances make up over 24% of El Salvador’s total GDP. There is no data regarding remittance payments in Cuba which may be due to the sanctions on the country. The lowered cost of sending money to family members using cryptocurrency could result in increased remittance payments as people no longer need to avoid typical fees.
Should other countries that are going through similar issues with remittance fees and sanctions like Venezuela, Turkey or even North Korea catch on to movements like the Bitcoin mining one in Iran, a broader trend could arise.
Read More: Is Cuba Looking To Adopt Bitcoin?