Cuba to exchange some foreign currency for pesos after two year hiatus

Cuba to exchange some foreign currency for pesos after two year hiatus

HAVANA, Aug 23 (Reuters)   Cuba announced on Monday it would begin exchanging dollars and other foreign currency for the local peso on a limited basis after a two-year hiatus during which residents turned to an informal money market for the cash.

The decision to begin selling dollars and euros in cash-strapped Cuba, which can scarcely afford such transactions, is aimed at snuffing out the black market, said Economy Minister Alejandro Gil, which officials have, in part, blamed for soaring inflation.

“We will gradually take steps …to give greater purchasing power to the national currency,” Gil said on state-run television on Monday evening.

The peso has no value outside of Cuba, so Cubans seeking to travel, migrate or purchase basic goods at on-island hard currency shops have flocked to the black market, driving up demand for foreign currency and pummeling the value of the peso.

The government fixes the exchange rate, currently 25 to a dollar, but nearly three weeks ago began purchasing – though not selling – foreign currency for 120 pesos to the dollar, a “first step,” said Gil in early August, in combating the informal market.

The peso has nonetheless continued to fall on the still-existing, though illegal, black market since that announcement, weakening to 140 to the dollar, according to independent online news outlet El Toque.

Central Bank President Marta Wilson Gonzalez said the Monday evening announcement would help boost the purchasing power of Cubans who earn only in pesos but do not have access to foreign currency through remittances or the tourism industry.

Cubans, Central Bank president Wilson said, will be limited to a maximum of $100 per transaction, and such exchanges will depend on the availability of cash in each location. Dollars will not be sold in airports, she added.

Cuban banks and exchange houses stopped accepting dollars to its citizens in 2020 citing U.S. sanctions and stopped selling foreign currency for pesos to the public soon after, stating it simply did not have the cash.

The government said inflation was 77% in 2021 and 28% through June of this year, while many independent economists inside and outside the country say it is in the triple digits.

(Reporting by Marc Frank)