Why did the US open up banking to Cuba's private sector?

The US Treasury's regulatory amendment to the so-called Cuban Assets Control Regulations, announced on May 28, has caused quite a stir in Washington and beyond. For the first time since the revolution in the 1950s, Cuban entrepreneurs can open a bank account in the United States and access it from Cuba.

The changes are intended "to promote internet freedom in Cuba, support independent Cuban entrepreneurs in the private sector, and expand access to certain financial services for the Cuban population," the Treasury Department said in a statement.

Cuba's private sector has grown significantly since the government in Havana established a legal form for small and medium-sized enterprises (SMEs) in 2021. Over 11,000 private companies, ranging from mom-and-pop shops to transportation and construction firms, have been founded since then. These newly established SMEs have notably improved the island's supply of goods through their imports.

Measure to stem Cuban migration?

The Biden administration's new measures will allow Cuban entrepreneurs to open bank accounts in the US and use US-based social media platforms, online payment sites, video conferencing, and cloud-based services. This means they can conduct money transactions through online payment platforms, removing a significant hurdle.

Additionally, the new regulation enables Cuban software developers to offer their apps for download in Apple or Google app stores, which was previously impossible due to the decades-long US blockade of the Communist-ruled country.

The Treasury Department is also reversing a Donald Trump-era measure that prohibited US banks from processing transactions between Cuba and banks in third countries, known as U-turn transactions in the banking industry. This change will facilitate money transfers for Cuban nationals as long as neither the sender nor the recipient is subject to US law.

However, direct banking with the US remains prohibited, meaning that financing, investments, and payments must continue to be routed through third countries.

"Providing support for Cuba's private sector will help to stem irregular migration from the island by creating more economic opportunity," the US daily Miami Herald quoted an unidentified US government official.

US businesses with links to the Cuban government or military entities remain restricted, and Cuban companies with ties to the government will also not benefit from the new rules, the source said.

Resistance building in the US

According to US media reports, the Treasury Department's measures were ready as early as September but faced resistance in Congress. Republican lawmakers expressed concerns that there is no free enterprise on the island, as the government still controls the private sector.

Cuban-American Congresswoman Maria Elvira Salazar immediately criticized the measures, saying on X (formerly Twitter) that the Biden administration's decision would "make a mockery of American law, considering no progress has been made toward freedom on the Island and repression has intensified." 

In Cuba, meanwhile, Foreign Minister Bruno Rodriguez said on the same social media platform that the US measures were "limited" and did not reverse the impact of the economic blockade imposed by that country on the island."

"These measures aim to divide Cuban society," he added. 

Skepticism prevails

Cuban economist Ricardo Torres from the American University in Washington, D.C. described the measures as "positive steps" that align with "the changing reality in Cuba." He told DW that sectors like software development would benefit and that easing financial transactions was also a positive move.

"But there's a difference between intention and practice," Torres cautioned, pointing out that US banks and businesses might want to protect themselves against potential future legal claims since there is "no certainty that a future US administration will maintain the measures."

A young entrepreneur from Havana, who wished to remain anonymous, expressed cautious optimism.

"It would be a significant step," she told DW, referring to the possibility of opening a US bank account and using online payment services. "But we will see how it works in practice. Let's wait and see how it develops."

This article was originally written in German.