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Cuba will implement a floating exchange rate in 2025, marking a significant shift in the management of the currency market by adjusting the value of the currency according to supply and demand.
Following the announcement made by Prime Minister Manuel Marrero Cruz during the last session of Parliament in December 2024, the Cuban peso showed a slight appreciation in the Informal Market Representative Exchange Rate (IMRER) published by elTOQUE, which had a discussion with two specialists to understand the challenges and expectations surrounding the relevant policy.
An unprecedented change?
The economist Pavel Vidal, an expert in economic policies and a professor at the Javeriana University in Cali, explained that this new system, managed through the Currency Exchange Houses (Cadeca) and bank counters, marks an unprecedented event in the Cuban economy.
Although there was limited floating exchange in Cadeca during the 1990s, the expert noted that the daily floating rate will be a novelty in the Cuban context.
According to Vidal's comments to the mentioned outlet, the regime will likely use the informal market rate as a reference to set the initial value, similar to what happened in 2022 with the parity of 1 USD to 120 CUP.
However, he warned that it will be crucial to implement clear and transparent rules to gain the trust of the population, a long-standing weakness in the country's economic policies.
One point of concern is the coexistence of multiple exchange rates. Currently, the official rate of 1 USD to 24 CUP is still used for state and budgetary transactions, which could lead to economic distortions if a clear strategy is not established to integrate both rates.
Structural challenges and partial dollarization
In statements to elTOQUE, Mauricio de Miranda, a specialist in International Economics and Development, noted that the partial dollarization of the economy has weakened the functionality of the Cuban peso. This dependence on foreign currency to obtain essential goods and services will continue to put pressure on the informal market unless measures are taken to boost national production and diversify the economy.
De Miranda emphasized that the opening of a more flexible and transparent currency market, where the private sector can also participate, would be a key step in restoring credibility to the Cuban peso. However, he pointed out that absolute state control in Cuba hinders the implementation of effective reforms.
Questions on the horizon
The government's announcement has generated expectations, but also many doubts. How will the initial rate be determined? What criteria will govern the daily adjustments? In market economies, supply and demand set exchange rates in real time. However, in a system dominated by a state monopoly, the effectiveness of the floating rate could be limited.
To ensure the success of the new system, economists agree on the need for a comprehensive effort that encompasses everything from economic diversification to greater transparency in monetary management. Without these elements, the announced measures could end up being more of a temporary fix than a long-term solution for the weakened Cuban economy.
At the moment, the latest changes in the informal currency exchange market may also be influenced by the arrival of Cubans residing abroad, who increase the circulation of foreign currency during the year-end holidays.
However, almost as a conclusion, economists warn that this strengthening of the national currency is temporary and does not reflect a structural improvement in the economy.
Frequently Asked Questions about the Floating Exchange Rate in Cuba for 2025
What is the floating exchange rate that Cuba will implement in 2025?
The floating exchange rate is a mechanism that will adjust the value of the Cuban peso based on market supply and demand. This system will be managed through Currency Exchange Houses (Cadeca) and bank counters, marking a significant change in the management of the currency market in Cuba.
What are the challenges of implementing a floating exchange rate in Cuba?
The main challenge is to ensure transparent and clear management to gain the trust of the population, as historically, economic policies in Cuba have lacked credibility. Furthermore, the coexistence of multiple exchange rates could lead to economic distortions if the informal rate is not effectively integrated with the official rate.
What will be the impact of the floating rate on the Cuban economy?
The floating exchange rate could encourage the shift of operations from the informal market to a more formal framework, which would reduce the risks of fraud and enhance the credibility of the Cuban peso. However, its success will depend on the implementation of structural reforms, such as economic diversification and the promotion of the private sector.
How will the initial exchange rate for the floating rate be determined?
It is likely that the government will use the informal market rate as a reference to set the initial value of the floating rate, similar to what happened in 2022 with the parity of 1 USD to 120 CUP. However, the criteria for daily adjustments have not yet been specified, leading to uncertainty.
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