Banking Sector Reform in Cuba

Banking Sector Reform in Cuba had been adopted in 1997 as a part of the on going economic reform. The banking systems in Cuba was playing an important role in achieving the country’s fiscal needs. So reform in the banking sector became necessary.

Reasons Behind the Banking Sector Reform:

• The National bank of Cuba, that was acting as a commercial bank, had no role in fixing the monetary trends of the country’s centrally planned economy.
• The financial system in Cuba had been dominated by the state for many years.
• The rates of interest were decreasing for which, accumulation of wealth was not possible for the government.
• The government could not find any mechanism to organize the operations of open market.

Reform Process:

• The Cuban government formed a new Central Bank, the Banco Central De Cuba, and shifted the central banking functions from the former national bank. This new bank had 200 branches and was serving as a commercial bank. Some new state banks had been chartered.
• The banking systems in Cuba had been computerized by the government. New cash dispensing machines were introduced and check-clearing systems had been modernized.
• The government expanded the insurance industry and promoted new products like personal pensions, travel and medical insurance.
• An investment bank had been formed to raise funds domestically and to finance the capital projects. The insurance sector also was opened to the foreign investors.
• Besides the new Central Bank, the Cuban government formed an autonomous entity to maintain the monetary stability and develop the economy.

Results of reform:

• In Cuba, through the reform process some financially non viable banks had been closed and at the same time several new state banks were established.
• A new and liberal banking system had been evolved due to the banking sector reform.
• The government was able to make the banks’ operation transparent through this reform.
• The newly formed Central Bank got the liberty to conserve the value of currency and the instruments of monetary control. This was a significant development through which an environment for a sustained economic growth had been created.