Cuba′s digital startups sidestep US remittances blockade | Business| Economy and finance news from a German perspective | DW | 02.12.2020
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Cuba's digital startups sidestep US remittances blockade

Money transfers from exiled Cubans living in the United States are crucially important for their families back home. But a recent US ban on remittances is forcing Cubans to go digital to keep dollars rolling in.

When international money transfer service Western Union closed its last office in Cuba at the end of November, large swaths of the Caribbean island's population suffered a massive hit to their income.

So-called remesas, meaning remittances from family members living and working in the United States, ensure much of their livelihoods and have ceased to flow after the Trump administration imposed a ban on cash transfers to Cuba.

Now Western Union has shut down all of its 400 offices on the island, ending decades of transferring dollars to Cuba where they were converted into Cuban convertible pesos (CUCs). Besides the CUC, Cuba has a national currency, the peso (CUP), which is used by the locals for everyday shopping. Officially, the CUC is pegged to the US dollar at a rate of 1-to-1 and is 25 times more valuable than the "common peso."

A woman holding notes of the normal Cuban peso, CUP, in her right hand and the Cuban convertible peso, CUC, in her left

One country two currencies: The normal Cuban peso (left) used in everday life and the Cuban convertible peso (right)

For Cubans to be able to continue getting remittance-based hard-currency CUCs, a clandestine network of cryptocurrency traders has emerged, offering new ways of circumventing the US sanctions. Startups like Cubacripto, Qbita and BitRemesas are part of an evolving cryptocurrency landscape that use digital coins like Bitcoin, Ether, Doge and others to engineer money transfers from the US.

Erich Garcia, a 34-year-old programmer and software engineer, founded the BitRemesas platform in September and has launched his own channel on YouTube to share information and advice on how to use the digital money transfer. "There is a growing community of crypto enthusiasts in Cuba" seeking to fill the void left by Western Union, he told DW.

The system used by BitRemesas, he says, is similar to that of the US company where you pay the amount you want to send to an agent or a bank plus a fee for the transaction. The receiver will need to provide proper identification to an agent in the receiving country to get the money.

"The system we use, however, doesn't include a bank because the money is sent in digital cryptocurrencies to us and we take care that it is paid out in physical money to the recipient in Cuba," he explained.

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A 'win-win' deal

BitRemesas peer-to-peer exchange platform is perfectly legal in Cuba because there is no law that forbids people to buy, sell, hold or use cryptocurrencies. It's also working smoothly, says Garcia.

Anyone who wants to send, for example, a $100 (€82) remittance to Cuba must buy Bitcoin worth that amount and send it to the platform's electronic wallet. In a "negative bidding auction," crypto users on the island then bid to offer recipients the best price for their coins.

"We usually auction off the smallest bitcoin amount possible, and it's well possible that someone gets between $88 and $93 worth in Bitcoin [for their $100]," Garcia explained, and adds that the lowest and not the highest bid wins the auction.

The difference between the original $100 worth of Bitcoin and the lower auction price is the commission received by BitRemesas. After a deal is reached the winning bidder credits the beneficiary's bank account with the local currency equivalent. Then the crypto startup acts as a sort of clearinghouse for the transaction by transferring the number of coins won in the auction to the bidder's wallet.

What may initially sound like a bad deal is, however, gaining popularity among Cubans. According to cryptocurrency watchdog Cointelegraph, Cuba saw a major spike in Bitcoin-related Google searches in early November, and the BitRemesas creator said the usage of the platform was "growing at 200% every month."

Shoppers lining up in front of a Cuban supermarket where payments in US dollars are accepted

As hard-currency income has fallen amid the COVID-19 pandemic, Cuba's government allowed payments in dollars at 72 supermarkets

The rising number of users also seems to reflect falling prices for Cuba's convertible peso. Although officially pegged at 1-to-1 against the dollar, black market prices have been hovering at around 1.50 CUC for quite some time. What also comes into play is that Cubans have no official place to go to for buying digital coins.  

BitRemesas has between 300 and 400 regular users currently, says Garcia. He estimates the Cuban cryptocurrency community to be around 10,000 strong. His clients generally remit "small amounts" of between $10 and $20, but sometimes also in the range of $100. Since they would save the fee formerly paid to money services like Western Union, small remittances have become affordable, he says.

And for those acquiring crypto coins in exchange, the benefit lies in holding a digital currency accepted all over the world rather than the CUC which is convertible only in Cuba. "This is a win-win situation for all," he underscored.

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Completely unregulated market

As major digital payment firms like PayPal and Stripe are not available for Cuban nationals, and the use of internationally accepted credit cards is limited, cryptocurrencies offer "certain freedoms," said Garcia, adding: "Our platform is completely unregulated because there is no one who can block or sanction transactions in digital coins on BitRemesas."

Before the Trump administration imposed the ban, it said remittances to Cuba could still flow, but "not through the hands of the Cuban military, which uses those funds to oppress the Cuban people and to fund Cuba's interference in Venezuela." Washington claimed Western Union's partner in Cuba, Fincimex, was allegedly controlled by the Cuban military hence the new measures.

But the ban is only the last in a long list of financial measures aimed at cutting off Cuba's communist government from global financial markets. Erich Garcia says using cryptocurrencies now enables more and more Cubans to buy on the internet, and he's planning to extend his company's service to paying electricity bills and mobile phone contracts with digital coins.

"They are going to become an alternative currency in Cuba to which everyone has access and in return provide many new opportunities to all of us," he concluded.

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This article was adapted from German.