The disruptions to Cuba's remittance flows during 2020-2021 represented the most significant structural shock to this critical economic pillar since the tightening of U.S. sanctions in 2019. However, the post-pandemic period has witnessed not merely a recovery but a fundamental restructuring of how remittances reach Cuban households.

The Scale of Remittance Dependence

Prior to the pandemic, formal remittance channels transmitted approximately $3.5 billion annually to Cuba, making remittances the largest source of foreign exchange for the island economy—surpassing both tourism receipts and export earnings. This figure, however, substantially understates total flows when informal channels are considered.

The informal economy now captures between 40-60% of total remittance flows, representing a significant structural shift from the pre-pandemic baseline.

Our estimates suggest that total remittance flows (formal and informal combined) reached $2.8 billion in 2023 and are projected to exceed $3.2 billion in 2024. While this remains below the 2019 peak, the composition of these flows has changed dramatically.

Channel Restructuring

The closure of Western Union operations in Cuba in November 2020 eliminated the dominant formal channel that had processed the majority of U.S.-origin remittances. In its absence, a fragmented ecosystem of alternatives has emerged:

First, cryptocurrency-based transfers have grown from negligible volumes to an estimated 8-12% of total flows. While still a minority channel, the growth trajectory suggests continued expansion, particularly among younger diaspora populations.

Second, the 'mule' economy—physical cash transport via travelers—has expanded significantly, though precise quantification remains challenging. Airport observations and survey data suggest this channel may now account for 25-30% of total remittances.

Third, Panama- and Mexico-based money service businesses have captured much of the formal market share previously held by U.S. operators, though at substantially higher fee structures—typically 8-12% versus the 3-5% that characterized the Western Union era.

Implications for Household Consumption

The higher transaction costs associated with current remittance channels directly reduce the purchasing power of Cuban households. Our consumer survey data indicate that recipient households report receiving 15-20% less value per dollar sent compared to 2019 benchmarks.

Moreover, the shift toward informal channels has implications for transparency and data collection. Official statistics increasingly understate the true scale of external household income, complicating macroeconomic analysis and policy formulation.

Outlook

The current channel structure appears stable in the medium term, absent significant policy changes from either the U.S. or Cuban governments. We project total remittance flows of $3.4-3.6 billion in 2025, with formal channels accounting for 40-45% of this total.

The key variable remains U.S. policy. A restoration of licensed remittance services would likely trigger rapid channel formalization and reduced transaction costs for Cuban households. Absent such changes, the current fragmented ecosystem will persist, with continued growth in cryptocurrency and physical cash channels.