Cuba's Institutionalized Dollarization and the New Economic Segmentation: Strategic Opportunities and Risks for Foreign Investors

Cuba's 2025 institutionalized dollarization policies represent a pivotal shift in the island's economic strategy, blending partial foreign currency liberalization with state-controlled segmentation. These reforms, introduced through Decree-Law 113/2025 and subsequent measures, aim to stabilize a faltering economy while maintaining state dominance over currency flows. For foreign investors, this creates a paradoxical landscape: opportunities in sectors like food production and the knowledge economy coexist with systemic risks tied to economic inequality, exchange rate volatility, and political constraints.

Strategic Opportunities: Reforms and Sectoral Potential

Cuba's new legal framework has introduced mechanisms to attract foreign capital, including streamlined approval processes for investments and greater monetary flexibility. Deputy Prime Minister Oscar Pérez-Oliva announced that foreign investors can now operate in both local and foreign currencies, with a focus on sectors generating foreign exchange, such as exports and domestic markets using USD or EUR according to the government. This dual-currency flexibility is designed to stabilize the economy and stimulate production. For instance, 32 new foreign investment projects were approved in 2025, involving $2.1 billion in committed capital, despite the U.S. embargo.

Food Production and Agroecology The government has prioritized food production, emphasizing agroecological practices and municipal self-sufficiency targets (30% of consumed food to be locally produced) according to official reports.

Streamlined procedures for foreign investors, including faster approval times and business plans replacing feasibility studies, aim to accelerate output. International cooperation in agribusiness and animal production is also being promoted, offering opportunities for investors to leverage Cuba's agricultural potential.

Knowledge Economy and Skilled Workforce Cuba's knowledge economy-encompassing IT, biotechnology, and pharmaceuticals-is another focal point. The government is incentivizing partnerships with international actors to harness its skilled workforce, particularly in biotechnology and pharmaceuticals, where Cuba has historical expertise. For example, foreign investors can now establish bank accounts abroad to mitigate the effects of the U.S. embargo, enhancing operational flexibility.

Risks: Segmentation, Volatility, and Political Constraints

While these reforms open avenues for investment, they also deepen economic segmentation and introduce significant risks.

Economic Segmentation and Exchange Rate Disparities The new system institutionalizes a dual economy: authorized actors operating in foreign currency and the rest confined to the depreciating Cuban peso (CUP). The Central Bank's official exchange rate (1 USD = 120 CUP) starkly contrasts with the informal market rate, which hit 400 CUP to 1 USD in August 2025. This volatility undermines cost forecasting and contract management for businesses, leading to informal practices like restaurants pricing meals based on unregulated rates according to market observers.

State Control and Foreign Currency Allocation The Currency Access Capacity Assignment (ACAD) mechanism allows the state to ration foreign currency, granting access only to approved entities. While this ensures state capture of 20% of foreign currency earnings, it also creates dependency on bureaucratic approval, limiting market-driven allocation. Non-state actors, including MSMEs and cooperatives, face restrictions on foreign currency usage, exacerbating inequality between those with and without access.

Political and Structural Risks

The U.S. embargo remains a critical challenge, with the Cuban government estimating $7.5 billion in economic damage from March 2024 to February 2025. Sanctions restrict access to international markets, remittances, and essential imports, compounding the risks for foreign investors. Additionally, the government's reliance on temporary dollarization as a stabilization tool lacks a long-term vision, with economists warning that structural reforms-such as strengthening domestic industries-are absent.

Conclusion: Navigating a Fragile Transition

Cuba's 2025 dollarization policies present a complex investment environment. While strategic sectors like food production and the knowledge economy offer growth potential, investors must navigate a fragmented economy, exchange rate volatility, and political uncertainties. Success hinges on aligning with state-approved frameworks, leveraging Cuba's skilled workforce, and mitigating risks through diversified strategies. However, the government's continued prioritization of control over market efficiency suggests that these reforms may only delay, rather than resolve, deeper structural challenges.

For foreign investors, the key lies in balancing short-term opportunities with long-term resilience-recognizing that Cuba's economic transformation remains as much a political project as an economic one.