As the holiday shopping season gets into full swing, is something capitalist happening in the socialist countries of Latin America? We're talking about the sudden dollarization of Cuba and Venezuela.
It’s no secret that communist Cuba’s threadbare economy is in deep crisis today. And it needs a lot more hard currency than it’s got coming in under its present currency regime. So Cuba recently re-opened the door to the U.S. dollar. More state-run businesses now take only the dollar as payment.
A big reason Cuba is having to do this is that its chief economic ally, Venezuela, is suffering the worst financial collapse in the world today. Not coincidentally, Venezuela’s socialist regime is dollarizing too. It’s estimated more than half the country’s transactions in October were in dollars. It's a tacit recognition by President Nicolás Maduro that Venezuela’s currency, the bolívar, is now worthless, thanks to years of his ruling socialist party's mismanagement.
So are Cuba and Venezuela bowing to U.S. capitalism? Hardly. If anything, this is about those governments desperately trying to ensure their socialist systems survive. But economists warn that in Cuba’s case, dollar dependence could backfire by weakening its national currency too severely.
Three other Latin American economies – Ecuador, Panama and El Salvador – are fully dollarized.