Cuba Ups Its Official Purchase Rate for US Dollars by 500%

Photo: Yandry Fernandez

By El Toque

HAVANA TIMES – The Minister of Economy and Planning, Alejandro Gil, announced on August 3rd, the first measures for the start of a foreign exchange market in the country. As of Thursday, the purchase of US dollars from individuals will begin at banks and change houses with a reference value of 120 Cuban pesos (CUP) for one US dollar. The official rate had been 24 x 1 until today, while the informal market had been hovering around 115-120 x 1.

The exchange however is one way. The government wants to compete with the illicit market for the dollars but does not sell them at any price. The measure will apply to the purchase of various foreign currencies such as the euro, the Canadian dollar, the pound sterling and the Mexican peso.

A week ago, economist Miguel Alejandro Hayes, anticipated the creation of a foreign exchange market where its main function would not be to sell but only to buy (foreign currencies).

“The Government responds to a fact: cell phone recharges are no longer attractive from abroad (Gil affirmed it) and foreign tourists change their money in cash in the informal market. The Government stops collecting all that money directly and a simple way to capture it is to offer an attractive rate for tourists to change in state institutions,” Hayes predicted.

According to Alejandro Gil, the exchange rate of 120 CUP for one dollar is only for buying. “When we start the purchase-sale, a balanced exchange rate will be set.” However, Gil did not clarify when the Cuban State will launch the sale of foreign currency to individuals, through its banking institutions.

Regarding this last point, Gil, also the deputy prime minister, announced that when the sale of foreign currency begins, limits will be set due to the high demand that exists.

Gil noted that the foreign exchange market cannot operate at the 1×24 exchange rate, “because it requires an amount of foreign currency that the country does not have. In addition, to do so it would be necessary to allocate foreign currency that today has another purpose in the economy”.

Cuban economist Mauricio de Miranda said that Alejandro Gil’s statements about the impossibility of establishing a single (buy-sell) exchange rate for the entire economy are erroneous. In the expert’s opinion, a single exchange rate is needed since the strength of the markets lies in its transparency.

De Miranda emphasized the importance of establishing an exchange rate governed by the market and not by a fixed exchange rate that will bring distortions in the country’s economy.

During the Round Table TV program —in which the news was revealed—, the president of the Central Bank of Cuba, Marta Sabina Wilson Gonzalez, explained that the foreign exchange market will work for all individuals, who will be able to sell foreign currency to the banks. Customers will be able to decide if the Cuban pesos they receive are transferred to a magnetic card or delivered in cash.

“People can sell through transfers they receive from abroad. If you receive a foreign transfer and need national currency, you can indicate that it be credited to your CUP peso account. In the same way, it can be done in cash”, stressed Wilson Gonzalez.

However, Gonzalez pointed out that commercial margins will be more favorable for electronic transactions over cash.

The implementation of these commercial margins constitute a “contribution” of the Cuban monetary authorities, explained Mauricio de Miranda.

“The margins that are established in the foreign exchange markets elsewhere are those that exist between the purchase and sale exchange rate. In that difference is the usefulness of the banking exchange rate. This is not what happens in Cuba. Applying that margin and selling at 110 pesos in cash, the only thing it means is the recognition of the informal market exchange rate that they had criticized for so long,” said De Miranda.

The director of the Central Bank of Cuba clarified that foreign currency purchase operations will be implemented in bank branches in all provinces, except in 40 municipalities where the conditions for it do not yet exist. The branches are located depending on the population level and the potentialities of the banking system.

Alejandro Gil pointed out that this measure “does not affect the State business system, where the 1×24 exchange rate is maintained. The imports that enter do so with that exchange, as well as the exports that are generated in the country”.

The economy minister concluded saying that the ultimate goal of these measures is to achieve a society with the greatest equity and social justice possible. However, this is quite unlikely.

As Alejandro Hayes explains, Cuban citizens are aware of the Government’s investment priorities: hotels. “If you collect a lot of currency, you will have to pay debts… and if you collect too much…, no, that doesn’t happen. He asked, once the (same) government had enough foreign currency, did the purchasing power of wages increase?

“In the brief boom period at the end of Obama’s term, the increase in foreign currency did not represent an improvement in the living conditions of people not linked to tourism, nor did it significantly increase social assistance or state wages, but, both in 2015 and 2016, for example, food shortages in the country increased. It will not increase buying power now either, it does not have to, nothing forces it to. On the contrary, the Government made new laws to protect itself while serving the interests of the economic power of the Cuban elite),” Hayes explained.

Mauricio de Miranda assures that the function of a state shouldn’t be to accommodate the markets according to the interests of the authorities. “In reality, the economic authorities have the fundamental responsibility of ensuring the development of a country, while recognizing the objective nature of economic laws.” Something that the Cuban Government does not seem to understand.

Read more from Cuba here on Havana Times

6 thoughts on “Cuba Ups Its Official Purchase Rate for US Dollars by 500%

  • Obviously, this should have been done a long time ago. I agree with the comment from Sean, that there is no longer a reason for the ‘dollar’ stores. What this move confirms is the weakness and lack of confidence in the Cuban economy. Devaluing the official currency by 500% in one fell swoop shows the worthlessness of the CUP. Prediction: in no time at all, the black market value of the US dollar and by reference, other foreign currencies, will jump to at least 200 CUP.

  • Many people are still disgruntled about the Hotels. If not for the hotels and pristine beaches, why would any tourist visit Cuba? Think about it. They are cash cows, however in the pandemic, they were useless.

    Yes, the wages are really low everywhere, even at the hotels but the workers all tell me the visitors and tips make it worth it.

    It’s a very intelligent move by the government. As a regular traveler that spends thousands of dollars each year in Cuba, I know my money won’t buy me as much but it won’t deter me from returning. I hope the wages adjust to this reality.

  • More flims flam scams from the Cuban government to rob tourists and Cubans abroad.

  • A very well thought out and written article that makes the key points that are missed by so many too quick to jump to the old knee jerk conclusions.

    Worth reading twice and slowly.

  • Isn’t now the perfect time to get rid of the mlc and just have one currency?

  • Cuban government getting desperate. I would ask all tourists to change their currency in the informal market so the currency goes to the people rather than supporting this corrupt government who continue to construct hotels with the dollars rather than invest in infrastructure and it’s people they claim to represent.

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