Cuban peso in free fall against the dollar

Cuba´s Exchange Rates Drops, but Domestic Prices Increase

HAVANA, Jan. 27th The Cuban Peso was selling at almost 100 to the Dollar on Tuesday’s informal market, according to a trader.

That is a decrease of over 30% in less than a month and four times the fixed official rate.

The peso’s free fall is bad news for a population that for two years has confronted a grave economic crisis and unusually severe shortages of food, medicine and other goods, a predicament made worse by the coronavirus pandemic and the Cold War-era U.S. embargo.

Local economists and business leaders attributed the recent depreciation to a growing perception that Cuba’s economy continues to weaken, with runaway inflation, while the government appears unable to reverse the trend.

El Toque tracker is an independent online news site that trades greenbacks for 97.50 pesos each Tuesday, as opposed to 72 at the beginning of the year.

Cubans were using the local electronic currency called the MLC to pay for goods in speciality markets. However, it was growing in parallel with the U.S. dollar. According to the online trackers, it traded at 95.90 on Tuesday.

Cuba is the only country where MLC and peso have any value. The exchange rate is currently set at 25 dollars to one dollar. However, the government has stopped trading dollars or other currency exchangeable currencies as it claims it does not have cash.

President Miguel Diaz Canel said last week that he needed to have a deeper political conversation with people who increase prices in both the state sector and the non-state. He blamed greed and speculation for the rising prices.

Cuba’s government estimated that annual inflation was 70% in 2012. However, at least three economists consulted for Reuters believe the rate to be between 300% and 500%. Consumers already severely affected by the economic crisis and pandemics have seen their prices rise.

Cuban wholesale and retail trade is controlled by the government. The most basic items are available in Cuba in pesos. In addition, all wages and subsidized fuel and utilities are also in pesos. Healthcare and education are completely free.

Cuban officials in December said they hoped to ease the burden by driving down inflation in the coming months, but sources told Reuters that the government was increasingly hobbled by the crisis.

A trio of foreign businessmen spoke out to request anonymity and said that government agencies that were able to fulfil obligations to foreign suppliers during much of the crisis are now falling behind in payments.

According to one businessman, “this has caused people to see that the situation continues its devastation and MLCs like the peso (or letters of credit), have no real backing, so there is a flight to exchangeable currencies.”

They claimed that the flight has further weakened the peso.

Meanwhile, the government had placed its hopes for 4% growth by 2022 on the recovery and expansion of the island’s vital tourism industry.

“I think there was an expectation that the reopening of borders, airports, hotels, and travel would bring in more dollars and improvements in the economy, and that was holding back a further depreciation of the Cuban peso,” Pavel Vidal, a former economist at Cuba’s central bank, said.

“But this recovery is turning out to be slower than expected and there is great pessimism everywhere, which is expressed in the exchange rate,” Vidal, who currently teaches at Colombia’s Pontificia Universidad Javeriana Cali, said.