The reaction of the informal currency market in Cuba to the government's price ceiling

The informal currency market remains watchful of the immediate consequences of the latest economic measures taken by the Cuban government.

Dólares y euros (Imagen de referencia) © Pixabay
Dollars and euros (Reference image)Photo © Pixabay

Immobilism, stability... that has been the reaction so far of the value of currencies in the informal market to the implementation of a price cap on six basic high-demand products in Cuba.

For the second consecutive day this Wednesday, the reference currencies point to a momentary stability and dawn without changes in their average sale, as revealed by the independent media outlet elToque.

The dollar, the euro, and the Freely Convertible Currency (MLC) maintain their prices from the last two days. At 7:00 a.m. (local time) on July 10th, the dollar remains priced at 340 pesos, the euro at 350, and the MLC at 295 CUP.

Exchange rate today 10/07/2024 - 7:25 a.m. in Cuba:

Exchange rate of the USD to CUP according to elTOQUE: 340 CUP.

Exchange rate of the euro EUR to CUP according to elTOQUE: 350 CUP.

Exchange rate of the MLC to CUP according to elTOQUE: 295 CUP.

The informal exchange rate of Cuba offered here is not officially recognized or backed by any financial or governmental entity.

"The prices cannot be reduced on a whim," the Ministry of Finance and Prices affirms.

The Ministry of Finance and Prices (MFP) of Cuba explained in a forum on Cubadebate that "prices cannot be lowered at will" in response to concerns from internet users regarding price caps for six products sold by the private sector.

According to the MFP representative, reducing prices arbitrarily would harm producers and merchants, affecting the future availability of products. However, this explanation contradicts Resolution 225, published on July 8, 2024, which establishes maximum retail prices for six products.

The representative of the MFP argued that the prices recover the costs and expenses of the products, whether they are imported or domestic.

However, the measure has been criticized by entrepreneurs and economists, who warned about the negative consequences of price caps, suggesting that the market should be regulated through supply.

Despite these criticisms, the Ministry of Finance defends "temporary regulation" as a means to contain the rise in prices and inflation, without mentioning the possible shortage that could result from that policy.

The Cuban government sets prices for six products

The Cuban government announced on Monday the implementation of price caps on six high-demand basic products through a resolution published in the Official Gazette of Cuba.

Resolution 225/2024 of the Ministry of Finance and Prices establishes that the products that now have maximum retail prices are as follows: chopped chicken (680 pesos per kg); edible oils except for olive oil (990 pesos per liter); powdered milk (1,675 pesos per kg); pasta (835 pesos per kg); sausages (1,045 pesos per kg); and powdered detergent (630 pesos per kg).

The Cuban government presented the resolution as an effort to mitigate the impact of inflation on consumers, for which it eliminated the payment of customs duties on the imports of these products for the private sector.

The government indicated that this cap takes into account acquisition costs, marketing, profits for traders, and sales tax. However, SMEs and some economists have spoken out against the measure.

Equivalences of each available Euro and US dollar bill to Cuban Pesos (CUP).

US Dollar (USD) to Cuban Peso (CUP), according to the exchange rates for this Wednesday, July 10th.

1 USD: 340 CUP.

5 USD: 1,700 CUP.

10 USD: 3,400 CUP.

20 USD: 6,800 CUP.

50 USD: 17,000 CUP.

100 USD: 34,000 CUP.

Euros (EUR)

1 EUR: 350 CUP.

5 EUR is equivalent to 1,750 CUP.

10 EUR: 3,500 CUP.

20 EUR: 7,000 CUP.

50 EUR: 17,500 CUP.

100 EUR: 35,000 CUP.

200 EUR: 70,000 CUP.

In March, Miguel Díaz-Canel promised a package of economic measures to "correct distortions and give a new impetus to the economy." He stated that prices would remain high, but that "abusive or speculative prices" would not be allowed.

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