Since the commencement of hostilities between Cuba and the US in the early 1960s, both governments have repeatedly attempted to influence private family transfers. Initially, both governments tightly controlled these transactions, implementing restrictive policies primarily directed at domestic monetary policy, in the case of Cuba, and bilateral financial transactions, in the case of the US. However, as economic and political dynamics evolved, Cuba's policy shifted more radically from overall prohibition to leveraging remittances. The US, on the other hand, has largely continued its initial policy approach of limiting remittance flows, although there has been a loosening relative to earlier regulations governing the amounts and channels that could be used by Cuban émigrés to send funds to their families.
This paper has attempted to show that Cuba has been partially successful in attracting and channeling remittances toward the State-controlled economy. The aggregate flow of remittances and their uses are highly sensitive to macroeconomic, political, and institutional factors. In terms of the political context, remittances remained at minimal levels during periods when the Cuban government actively discouraged contact with the Cuban émigré community. In macroeconomic terms, dollar legalization in 1993 was a critical first step in shifting remittance patterns. Institutional factors were decisive in ensuring that a significant majority of the resources flowed through official channels, both directly, through development of a dollarized financial architecture and indirectly, through the creation of consumer dollar stores.
However, not all policy tools utilized by Cuba to encourage remittance flows through official channels have been effective. Only a small proportion of net transfers have been channeled to interest-bearing dollar checking and saving accounts or currency exchange bureaus. In contrast, the government has been largely successful in two areas: official transfer mechanisms and consumer spending. The opening of State-run consumer markets for food and other goods has proven to be an effective means of attracting remittance flows to the official economy. In terms of magnitude, annual dollar sales have surpassed official remittance flows. Based on official data, a higher proportion of remittances are being sent through official channels, reaching at least 40% of total officially reported flows.
Nearly a decade after reforms were initiated, however, a sizable portion of remittances are still sent through non-official channels and circulate in the extra-official economy. Based on the Cuban government’s own reporting of the amount of net transfers, more than half of these total flows are still being sent through unofficial channels. Similarly, significant flows are not being spent in the State-run economy. Finally, once these resources enter the domestic economy they create impacts, many of which are unanticipated or exert countervailing pressures to the policy goals targeted by the government. A case in point is Cuba’s extra-official exchange rate with the convertible peso. As Cuba moves toward a unified exchange rate, the appreciation pressures exerted by remittance flows run counter to the country’s export and tourist-oriented development strategy.
US policy toward private family transfers to Cuban relatives on the island has shifted from prohibition of these transactions to capped allowances under tightly regulated procedures. Since the early 1960s, US policy has continued to maintain Cuba's international economic isolation, but it has become less effective over time. Because Cuba has expanded its trade and monetary relations with Western and Latin American countries, it has developed direct financial transactions mechanisms that provide viable third country channels for émigrés in the US to send funds. In light of the crisis sparked by the collapse of the Soviet Union, tightening measures instituted by the US have been largely ineffective in limiting the flow of remittances to Cuba. Indeed, during the US ban on remittances from 1994 to 1998, such flows continued and even grew.
While this paper has provided evidence and assessed the effectiveness of Cuban and US government policies on the pattern of remittance flows to Cuba, there remains a need for further analysis. First, this analysis is based largely on official estimates of the volume of remittance flows to Cuba. Yet, given the significant portion of family transfers that are sent through unofficial channels, further studies need to be undertaken on the overall magnitudes and the share transmitted through unofficial channels. Second, the evaluation of the effectiveness of Cuban government policy would be improved with a cost benefit analysis examining whether the gains in official remittance flows and uses outweigh the administrative and potential political costs for the Cuban government. Finally, further research needs to be conducted on understanding the motivations of Cuban émigré senders as well as the uses of remittances at the household level within Cuba.
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