CUBA STANDARD — Cuba’s central bank officially recognized the use of crypto currencies.
Resolution 215, published Aug. 26 in the Gaceta Oficial, sets the norms how the Banco Central de Cuba will regulate cyber currencies, and states that the central bank will license commercial providers, but spells out few details.
“It will be important for the government to regulate and maintain sovereignty over the financial system”, said Eduardo Sánchez, a Cuban blockchain expert. “The Cuban context shares the same risk with any other crypto market in the world — the volatility, security, capital flight, financing for criminal activities.”
The official recognition of cyber currencies follows a boomlet in Cuba prompted by the U.S. government’s shutdown of most legal channels for U.S.-Cuba remittances in late 2019.
A more aggressive U.S. sanctions regime against Cuba in recent years has led international banks and companies to avoid transactions involving the island, and prompted remittance giant Western Union to pull out of Cuba. And most recently, travel restrictions imposed in response to the COVID-19 pandemic have been affecting informal remittance channels.
In September 2019, the central bank – together with the University of Havana – began to study whether the country should introduce its own cryptocurrency, following the lead of Venezuela. There has been no announcement whether the partners have come to any conclusion.
“Cryptocurrencies still present several drawbacks to globally replace traditional fiat and bank money,” says Pavel Vidal, a former central bank economist who now teaches in Colombia. “But for the Cuban economy, compared to the unusual financial scenario in which it operates due to the U.S. embargo and the high costs it causes, it is understandable that crypto currencies can be an option, to circumvent some of the sanctions and generate net benefits. Crypto currencies have the potential to generate financial alternatives for Cuba’s foreign trade, for remittance flows, and could be used to finance small and medium enterprises from abroad.”
The central bank resolution is a far cry from an enthusiastic embrace. Showing official Cuba’s skepticism regarding the soundness of cyber currencies, the resolution says the central bank will continue to warn consumers about the risks of virtual money. In a disclaimer, the text clarifies that “natural persons assume the risks and responsibilities … of operating with virtual assets and virtual asset service providers that function at the margins of the banking and financial system, even if virtual-asset transactions between said persons are not prohibited”.
State banks and enterprises will only be allowed to use cyber currencies with the express permission of the central bank.
The new rule clarifies that all cyber currency service providers will have to seek a license from the central bank. The resolution defines as cyber currency service providers “any natural or judicial person that as business or business activity dedicates itself to the exchange between virtual assets and legal currencies; the exchange between one or more forms of virtual assets; the transfer of virtual assets; the custody or administration of virtual assets or instruments that allow control over virtual assets; and the participation in the provision of financial services related to the offer of an emission or sale of a virtual asset”.
A Cuban crypto boomlet
In Cuba, a tech-savvy younger generation has increasingly adopted cyber currencies, thanks to the spread of mobile Internet, and due to a weak local currency that makes it harder to get dollars, as well as U.S. sanctions complicating money transfers. Crypto currencies offer a parallel financial infrastructure, allowing users to bypass the U.S.-controlled SWIFT messaging service that banks use to communicate payment instructions.
A fairly high percentage of Cubans seem to have become familiar with — or even use — crypto currency. Cubans have used virtual currencies to get paid for jobs, receive remittances from the United States, and to invest in crypto assets. Along the way, Cuba has joined the world’s most active markets with crypto currency. According to Fintech Times, Cuba in late 2020 was the No. 1 country for crypto inquiries as a percentage of all inquiries on TradingView, a platform that keeps tabs on stocks, bonds, regular currencies and cryptocurrencies.
Qbita, a bitcoin exchange platform launched in 2019, leads the field of virtual currency service providers in Cuba, with 13,000 users and a volume of US$354,771 in transactions in 2020. Qbita facilitates the exchange between bitcoin and Cuban pesos, US dollars, and other cryptocurrencies. Other startups, such as Fusyona and Bitremesas, and more recently QvaPay, are not only transmitting remittances, but provide business solutions to Cuban entrepreneurs through the use of crypto assets.
Investment platforms such as Trust Investing and QubitTech manage crypto assets and offer investment plans to Cubans. Tulip Research, a financial forensics firm focusing on blockchain, defined both as Ponzi schemes, and the national exchange commissions of Spain and Panama issued a warning in 2020 against Trust Investing. But that has so far not stopped their rising popularity in Cuba.
Meanwhile, crypto mining — the “production” of virtual money — is difficult to perform in Cuba. Unlike in oil-rich countries such as Iran or Venezuela, where government subsidies lower the cost of electricity needed for computers to process crypto currencies, Cuban “miners” face severe material limitations.
Even so, crypto has become a fact of economic life. Says Eduardo Sánchez: “There could be an entrepreneurship boom connected to crypto assets in the next couple of years in Cuba. There is potential and talent for that. But it all depends on the relationship with the U.S. and the success of domestic reforms.”
U.S.: Crypto is not off limits
Recently, the U.S. Treasury has been catching up, in what seems to be a systematic crackdown against U.S. companies engaging in cryptocurrency transactions involving sanctioned countries.
In late December, the Office of Foreign Assets Control (OFAC) fined BitGo, a Palo Alto, Cal.-based crypto wallet and custodian, for allowing users from Ukraine, Cuba, Iran, Sudan and Syria to access its crypto wallet. Six weeks later, OFAC announced it fined BitPay Inc., after it alleged that consumers in sanctioned countries had used the Atlanta-based company’s cybercurrency merchant payment solution. Both companies settled the allegations by paying a fine and agreeing to block customers in sanctioned countries. OFAC has also added individuals and hosts of cryptocurrency addresses, such as Zcash and Dash, to the Specially Designated Nationals (SDN) list, over crimes ranging from wire fraud to election interference.
Cuba made news in 2019 when tech guru John McAfee offered the island’s authorities assistance to create a digital currency to defeat the U.S. embargo. However, there was no apparent response by the Cuban government. McAfee, on the run from U.S. law enforcement, committed suicide in June in a Spanish prison, as he was about to be extradited to the United States.
—Bryan Chester Campbell Romero contributed to this article