The Case For Mobile Money in Cuba
It’s 2018 and Cuba’s economy faces a complex challenge that has been on its docket for years: the unification of its dual currencies. Cuba uses the original Cuban peso (~24 to the US dollar), and the Cuban Convertible Currency (the CUC, equal to the dollar), created to isolate Cuba’s tourist economy from the Cuban socialist economy.
There are two Cuban economies: the socialist one, with low salaries and subsidized rationed goods, and the capitalist one, with CUC prices roughly in-line with world market prices. Cubans in the public sector are paid in Cuban pesos, but many purchases must be made in CUC. Lines to change money at the banks are long, and public sector salaries don’t reflect the prices of the goods Cubans are buying. Exchange rates between the peso and CUCs depend on the context and range from 1:1 to 25:1.
“It’s crazy. What country has two currencies?” said a millennial from Santa Clara working in the private sector.
Not only is the island dealing with two currencies, but Cuba operates with an almost all-cash economy. The reasons are many: the US embargo, limited banking culture, minimal trust in banking institutions, and outdated economic infrastructure. The result: most Cubans store their savings under the mattress, in safes in their homes, or abroad.
“The banks ask too many questions about where you got your money from,” said a Havana-based translator currently operating in the private sector.
The answer to some of Cuba’s economic problems may lie on the other side of the globe in East Africa, where mobile money has taken over. From businesspeople in Nairobi to elderly Maasai warriors in western Kenya, over half of Kenyan adults use a form of mobile money, and in 2015, “$50 billion in mobile money transactions passed through M-Pesa, the most used platform in the country, with 16.6 million active users.”
How? M-Pesa started as a part of Safaricom, a Kenyan cell phone provider, as a way of paying phone bills through phone credit. Users can add money to their accounts through makeshift kiosks situated wherever there are users, and they can deposit or take out cash as if it was an ATM. All Cuban lines are prepaid with phone credit, or saldo.
In Kenya, 80,000 jobs as Safaricom agents have sprung up since 2007. In Cuba, Agentes de Telecomunicaciones are private workers who sell phone and internet credit from their homes. There are multiple per neighborhood, and would be the ideal first agents of mobile money in Cuba.
In East Africa, I saw users pay with their phones for everything, at restaurants, bars, stores, even tuition at schools.
Women were freer to control their money in digital form. I interviewed women in Tanzania who used to come home and hand over their day’s earnings to their husbands. Now, with digital money, they can save bit by bit. Money travels from the cities to the countryside in an instant — I remember making milk tea in a Maasai mud hut in Kenya with my host’s grandmother when her flip cell phone lit up. “Ya! Money from my son in Nairobi!” She went to the market to buy grain the next day.
Individuals no longer have to keep cash in their pockets or in their homes, de-incentivizing petty crime, facilitating remittances from cities to rural areas, and dramatically accelerating the movement of money. In development terms, East Africa “leapfrogged” the need for advanced banking and credit systems and the need for universal internet by introducing mobile money. It’s one of the benefits of countries developing (in Western capitalist terms) in 2018.
Cuba is well-positioned to utilize mobile phone money. Almost half of Cubans have cell phone lines, and 65% of Havana residents get credit recharges from abroad. With billions of dollars in remittances and millions of Cubans working in the private sector and/or tourism, there is more cash floating on the island than ever before.
Notably, mobile money requires only a phone. This matters in Cuba because internet is not yet universal. Also, the US embargo has precluded American payment processing companies from functioning in Cuba. Mobile money doesn’t require payment processing, internet, a bank, a credit card, or good credit. Just a phone.
The tools for a functioning cash-free market are already there.
With more money in digital form, currency unification will be made easier, as millions of individual cash piles will not have to be exchanged simultaneously. Cuba’s all-cash economy could transition without relying on a large American corporation, card swiping technology, or ubiquitous internet. Additionally, the Cuban government could also get a better idea of the true size and shape of the black/gray economy on the island, which is arguably the size of the official economy.
Currently, some Cubans are selling their saldo, or phone credit on prepaid phones, by taking advantage of the bonus offers from phone recharging companies like Ding. Roughly once a month, when you recharge through Ding, you’re given bonus phone credit for free. Some Cubans sell their saldo and keep their bonus to make a few extra bucks a month.
The Miami Herald recently reported that ETECSA (Cuba’s state-run telecom company) will start allowing three money transfers a day starting in June, as opposed to the previous one-a-day limit. Some Cubans have started calling the transferable ETECSA money “Etecsos”.
Here’s hoping this is a signal towards the increased use of mobile money in Cuba, though the M-peso has a better ring to it than an Etecso.
