Dollar Hits a Historic Record on the Informal Market

Dollar Hits a Historic Record on the Informal Market

HAVANA, Oct. 2nd.  The exchange rate in the informal market in Cuba is about to break the psychological barrier of 200 Cuban pesos (CUP) per dollar, and without expectations that the national currency will stop depreciating, according to economists consulted by EFE.

Even in the so-called Special Period of the 1990s — after the fall of the Soviet bloc — did the dollar reach the current exchange rate?

The informal market, the most important on the Island, is where many people stock up on dollars before joining the current wave of migration. Since October 2021, more than 180,000 Cubans have arrived in the United States, also a record number.

Two weeks ago, an official press release predicted that the dollar would exceed the level of 200 pesos and pointed out that “you don’t need to be a guru” to infer that the migratory stampede will further depreciate the national currency as the demand for dollars grows.

“It is a self-fulfilling prophecy,” says Cuban economist Pavel Vidal Alejandro, associate professor at the Javeriana University of Cali (Colombia), in an interview with EFE. “There’s a total lack of credibility in the Cuban peso, and there are no monetary policies to reverse the situation,” he adds.

Although the depreciation was already evident since 2021 — the year in which the largest economic reform in recent years, known as the Ordering Task*, came into force — the plummeting of the peso actually originated this August.

Just a year ago, the dollar was at 65 pesos in the informal market. Ten months later, on August 1, at 115 pesos. Just two months later, on October 1, it depreciated almost 80 more, up to the 198 pesos marked this Saturday by the index published daily by the independent media El Toque.

At the beginning of August, the Minister of Economy, Alejandro Gil, announced that the State would buy foreign currency from individuals at a competitive rate, a measure designed to attract foreign currency in a scenario of crisis in tourism, which collapsed with the COVID pandemic.

Gil specified that the purchase would be based on an exchange rate five times higher than the official one — from 24 Cuban pesos (CUP) to the dollar, established in the Ordering Task — at levels similar to those of the informal market at the time (around 120 CUP).

Twenty days later, Gil made another announcement: the Government would also sell foreign currency, although with limitations including a $100 limit and based on availability. The objective, he explained, was to strengthen the peso and displace the buying and selling of dollars on the street.

After the entry into force of the rule, Cubans made long lines to acquire the greenback at the exchange houses (Cadecas), where there was even deployment of state security agents. However, we found on several verifications that the dollars the government sells were running out early, and the dollar and other hard currencies began to rise like foam on the informal market.

The experts consulted agree in describing the measure as erroneous, and that it showed the fragility of the State in the face of the informal market. Since then, the peso has fallen dramatically.

“The State became one more competitor (for buying and selling hard currency)” that couldn’t win the game against bidders with better prices, economist Tamarys Lien Bahamonde told EFE.

Also, Cuban economist Elías Amor shares the diagnosis and adds: “At the time they set the new rate, the agents (on the street) increased the amount paid for the dollar to maintain their customers, and that’s normal. It’s called competition.”

Amor believes that one of the root problems was to place the rate at 24 to 1 in the Ordering Task back in January 2021: “That rate was pulled out like a rabbit from the hat.”

“It was a miscalculation from the beginning, and one the Central Bank of Cuba couldn’t support with hard currency at that fixed rate,” he noted.

The implementation of the limited official foreign exchange market dragged down a currency (the Cuban peso) that had been losing ground in the daily lives of Cubans, who have also seen a stable safe haven in the dollar, experts point out.

But above all, analysts warn of an increasingly normalized phenomenon in the country: the social division between those who have foreign currency and those who do not.

Bahamonde recalled that not all problems can be attributed to the foreign exchange market implemented by the Government. The economist stressed the role of the controversial stores with USD prices where people can only shop with magnetic MLC cards tied to foreign currencies. The so-called dollar stores opened in 2019 and are occupying more and more space in the retail market every day.

“The Cuban peso must be left as the main currency of the country. There is a dilemma: to end or not with the MLC only stores to save the peso,” Bahamonde adds.

Another alarm signal is the number of pesos in circulation because the increase favors inflation, another of the current problems of the Cuban economy.

The increase in prices was officially 13.40% in the first half of the year, although independent analysts have placed it above 100%.

The three experts agreed that the dollar will continue to increase in the short term. “Surely (the rate will reach) 300 by the end of the year,” Amor said.

Vidal, on the other hand, did not give an exact figure but made it clear that “200 will not be the limit.” Bahamonde was more cautious and limited himself to pointing out that he sees “no possibility of containment of the rise in the exchange rate.”


*The “Ordering Task” is a collection of measures that include eliminating the Cuban Convertible Peso (CUC), leaving the Cuban peso as the only national currency, raising prices, raising salaries (but not as much as prices), opening stores that take payment only in hard currency which must be in the form of specially issued pre-paid debit cards, and a broad range of other measures targeted to different elements of the Cuban economy.