What will happen to the dollar in Cuba?: An economist explains the new currency measures

Cuban economist Pedro Monreal criticized the recent announcement by the Cuban government regarding a supposed "new exchange rate regime," pointing out that it lacks the foundations to be considered as such.

Through a thread on the X platform, Monreal argued that the proposed change does not represent a significant transformation of the current exchange system; rather, it essentially maintains a fixed rate with variations in its secondary component for the "population and non-state sector."

"There are no grounds today that validate the transition to an announced 'new exchange regime' in Cuba. Essentially, the fixed exchange rate regime would remain in place, with variations in its secondary exchange component for the 'population and non-state sector,'" stated the prominent analyst of the Cuban economy.

According to Monreal, since the implementation of the "economic and monetary ordering" in January 2021, Cuba operated under a fixed exchange rate of 1 USD to 24 CUP. However, in August 2022, a "flexible" rate was introduced for the non-state sectors, initially set at 120 CUP per dollar, aligning with the informal market.

This framework, which combined fixed and flexible elements, was then described as "economically grounded," although the then Minister of Economy, Alejandro Gil Fernández, acknowledged that it did not represent an equilibrium exchange rate.

In this regard, Monreal pointed out that the recent announcement for December 2024 mirrors the strategy from 2022. Although the government uses the term "floating rate," the economist warns that this could lead to confusion and lack of transparency.

Instead of establishing a true foreign exchange market with a balance between buying and selling, Monreal indicated that the scheme functions more as a mechanism for the state to collect foreign currency. According to him, the level of flexibility seems to be the only notable difference between the actions taken in 2022 and those currently in place.

The announcement of a "new currency regime" comes at a time of deep economic crisis in Cuba, characterized by the ongoing depreciation of the Cuban peso and the government's inability to stabilize the informal market.

Despite official promises, the document that regulates this system does not clearly outline how equitable access to foreign currency will be ensured or how the inflationary impact on the prices of essential goods will be controlled.

Previous reports highlight that the government strategy prioritizes the acquisition of foreign currency through state purchases, limiting the involvement of the private sector and leaving the population at a disadvantage.

Additionally, the proposed model does not address the structural causes of the currency crisis, such as the lack of confidence in the national currency and the limited domestic production.

Impact on the Economy

The proposed scheme has also been criticized for its potential to exacerbate economic inequalities.

The dependence on informal rates to determine initial values introduces uncertainty into an already volatile market. Monreal emphasized that limited access to state currency sales perpetuates informality and hinders economic stability.

On the other hand, the proposed regulation seems to reinforce the centralization of state control, to the detriment of a competitive and transparent market. This could deter potential investors and limit growth opportunities for the private sector.

Pedro Monreal's criticisms highlighted the inconsistencies of the new exchange rate scheme announced in Cuba. Rather than representing a structural change, the economist argued that the model perpetuates the existing monetary policies, with only marginal adjustments that do not address the system's shortcomings.

Frequently Asked Questions about the Exchange Rate System in Cuba