Cuban Peso Continues to Fall against the Dollar & Euro
HAVANA TIMES – Cuban Prime Minister Manuel Marrero said on Monday that among the Government’s pending and urgent tasks is “the restructuring of the foreign exchange market,” set for February. Now in March, and without measures on the horizon, it is impossible to contain the fall of the Cuban peso. In the midst of government inaction, the escalation in the price of foreign exchange is unstoppable, and the forecasts of the Observatory of Cuba’s Currency and Finances (OMFi) predict that both the euro and the dollar could exceed 340 pesos in the informal market this month.
In its monthly report, the OMFi, an independent project promoted by Cuban economists and journalists to provide information about the foreign exchange market and the evolution of the country’s financial and economic indicators, states that in February the euro reached 320 pesos, while the US dollar reached 314 and the MLC (the Cuban magnetic currency) reached 268, which meant a depreciation of the national currency by more than 8% with respect to the foreign currencies and 5.1% in relation to the virtual MLC. Despite the disastrous data, it is a relief compared to the month of January, when the peso lost 18.5% of its value against the dollar and 17.6% compared to the euro.
“Due to the constant informal market depreciation of the peso and the inaction of the economic authorities in terms of exchange rate policy, the gap between the multiple exchange rates in the economy continues to widen,” says the document, signed by the Cuban economist Pavel Vidal, a resident of Colombia.
The OMFi, which manages a model by which it predicts the depreciation of the peso, estimates that in March there will be on average a new devaluation of the national currency of 8% with respect to the euro and 9% against the dollar, with a maximum of 340 pesos or 330 in a more conservative scenario. According to its analysis, the consistent devaluation shows that there are no speculative factors behind the rise, but that its origin is related to “the permanence of fundamental imbalances connected with the crisis in national production, inflationary pressures and limited foreign exchange income in the economy.”
The argument responds, possibly unintentionally, to the constant accusation from the ruling party towards El Toque – which is part of the OMFi – of speculating with exchange rates by forcing a rise. In mid-2023, the independent media was the subject of criticism from the official Razones de Cuba, which accused it of cooperating with the United States in its “unconventional war” to force a social crisis. El Toque has explained its method of analysis and calculation to eliminate any unfounded suspicion, but the regime does not ease off. This same Tuesday, its Facebook account returned to the attack.
“What do you know about the induced inflation operation carried out by the CIA and carried out by El Toque? Inflation in Cuba is being generated, induced, with criminal manipulation of the exchange rate,” said the regime’s media. The objectives are to “attack the currency, not only to generate hyperinflation, but to contract production; to alter the distribution of goods, take them to informal markets and sell them at inflated prices; and, basically, to attack the economic measures of the Cuban Government.”
To the surprise of few, the publication has received an avalanche of responses in which users, loading their comments with irony, question the media for attributing so much power to an independent website and such little power to a Government with all the devices of the State in its hands.
“More than the objectives (of El Toque), they should explain how they do it, and how the Government is unable to counteract it,” says one of the most moderate. Because what is more than evident is the Government’s inability to take effective measures to stabilize the currency. By the way, El Toque has explained its methodology to the point of exhaustion and is quite convincing. The Government has no explanations and takes measures without listening to renowned national economists.”
The OMFi report points out that the most recent changes in tariffs, taxes and prices have been processed by the market “in an orderly manner,” but this could change depending on the decisions made by the Government, in addition to the uncertainty with which the market reacts to its policies.
The coexistence of three rates for the currency, two official – 24 and 120 pesos for 1 dollar – and an informal one that is, in practice, the most widespread – by private and in current transactions – coupled with the de facto dollarization of the economy “distorts the relative price signals on which the productive sector and consumers must make decisions,” the report adds. This generates, it continues, great inequalities with a particularly negative impact on agriculture, since “the farmers must face both the prices set by the State with the official exchange rate and the market prices that follow the dynamics of the informal exchange rate.”
As for informal currency sellers, profitability remains high, and, according to the document, the trend is expected to continue in March, although there are indications of a possible – but unlikely – downward reversal. In addition, since January there has been a demand for currencies well above supply, which is the basis for the accelerating depreciation of the national currency. At the beginning of February there was a slight drop in demand, but it was not enough to change the upward trend. The supply of money has experienced a “discrete positive slope,” but, once again, it is not enough for a real impact to occur.
The report adds that, despite the fact that the depreciation of the Cuban peso was 18% in the last quarter alone, there are still a large number of buyers willing to pay the price that is asked for the currencies. “The behavior is consistent with the macroeconomic panorama and confirms that the fundamental factors that determine a high demand for foreign exchange (excess pesos in circulation, dependence on imports, dollarization and high inflation) and a low availability of foreign exchange (limited exports and remittances) have been consolidated. The temporary closure of Western Union’s operations has worsened the development of remittances in recent weeks,” it concludes.
Translated by Regina Anavy for Translating Cuba
I think the govt needs to change the peso to the rate of 300 to the U S dollar on all official transactions both way increase pensions to 6000 peso per month and electric workers and health care workers need their wages raised to 3 time the current pay peso with the option of one third of in a US dollar card that can only be used in Cuba at a exchange rate of 300 peso to U S dollar all hotels should allow tourists to put U S dollars on a hotel safe and allow A T M with draws of U S dollars up to $50 per day or peso at 300 to the U S dollar or $220 peso the Canadian dollar the current system of tourists bringing large amounts of cash and carry it with them will cause more assaults and robberies and the result will be less tourists less US dollars
“The Government has no explanations and takes measures without listening to renowned national economists.”
That in a nutshell is the crux of the monetary mess the Cuban economy finds itself. The Cuban currency – the peso – is worthless outside Cuban borders. Any transactions involving foreign business requires either American dollars or European Euros.
Inside Cuba, Cuban entrepreneurs importing goods into the economy more than likely purchase the goods from the U S A or Europe requiring foreign money. Where are these Cuban entrepreneurs obtaining their required business transactional currency? There is a strict limit to how many American dollars a Cuban bank will sell to a Cuban.
There is no limit to how many American dollars a Cuban can buy on the black market. Hence, the excessive rise in the value of the American dollar in Cuba. As the value of the foreign currencies rise in Cuba this of course leads to significant inflationary pressures on the local economy.
The Cuban entrepreneur importing food stuffs, medicines, whatever must increase prices causing local Cuban buyers to refrain from purchasing such inflated products. The majority of Cubans paid in Cuban pesos cannot afford inflated imported goods. At 314 pesos for one American dollar, the majority of Cubans cannot even purchase a can of beer which costs more than one American dollar.
As the economic situation becomes even more dire, more Cubans see no future in their homeland and invariably seek to leave. To leave requires foreign currency; hence, again the demand for dollars or Euros increases and by extension so does the currency value – excessive demand over supply.
Cuba is not the first country that has experienced this dire economic malaise. Other countries have listened to their learned economists and have either reversed course or implemented some drastic economic solutions. Economics is not a difficult subject to understand nor to implement; however, it does not portend well with totalitarianism.
As the article clearly points out the present archaic Cuban leadership is stuck in their ideological island and they have no realistic solution or stomach for drastic economic market driven change. According to the Cuban leadership, the blame for the present economic morass lies elsewhere and not in Havana.