The fall of the dollar in Cuba: between economic illusion and the history that repeats itself

The news that the informal dollar has fallen for several consecutive days in Cuba has caught the country's attention. For some Cubans, there is a sense of relief; for others, skepticism regarding a phenomenon that many consider just a brief flicker in the crisis. But what is really behind this decline? Can we expect a sustained recovery of the Cuban peso, or is it just a momentary calm amidst the storm? Looking beyond the headline and comparing it with similar episodes in regional history allows us to understand that we are dealing with a dynamic that is much more structural and predictable than it appears. You can see regional examples in this analysis of the region.

Will we be able to see a sustained recovery of the Cuban peso, or is it just a brief calm in the midst of the storm?

Firstly, the decline in the informal dollar exchange rate—from records around 490 CUP to recent levels of 415-420 CUP—responds to the same speculative cycles observed in parallel markets across Latin America. This phenomenon is known as “overshooting” or overreaction: when negative expectations, fueled by rumors, institutional crises, or fear of new restrictions, lead to mass purchases of foreign currency. The price surges beyond its actual equilibrium until some event or information campaign triggers panic selling, causing the market to correct downward. This pattern has been repeated, for example, in Argentina with the “blue dollar” or in Venezuela with informal dollarization, where parallel exchange rates experience phases of euphoria and depression, but always trend towards the depreciation of the local currency in the long term.

The recent drop in Cuba does not represent a real solution to the problems that caused it. Despite the adjustment, the fiscal deficit, rampant inflation, shortage of foreign currency, and lack of confidence in the local currency still persist. Similar to Argentina or Venezuela, temporary declines often give way to new phases of dollar appreciation when negative expectations resurface and economic fundamentals do not improve. You can compare the experience of Venezuela by reading this article.

It is likely that the dollar exchange rate will resume its upward trend once the speculative "shock" has passed.

The psychology of the masses plays a critical role in these fluctuations. It is often enough for rumors of new controls, state actions, or news of inflation to surface for thousands of small savers and business owners to rush to buy dollars, driving the price much higher than what the actual flow of currency in the economy would justify. Often, coordinated misinformation campaigns, whether to inflate or to undermine the exchange rate, contribute to the volatility. This occurred during economic crises in Latin America, where parallel dollar prices fluctuated wildly, creating speculative bubbles and bursts that generated the illusion of stability, only to later reveal that the structural problems were still present.

The recent decrease in Cuba does not represent a real solution to the problems that caused it.

In the Cuban case, this combination of speculation, expectations, and rumor is exacerbated by the absence of a transparent currency market, restricted access to foreign currency, and persistent inflation. Although it may seem that the dollar is “dropping,” historical experience and macroeconomic analysis lead to the conclusion that without fundamental structural reforms—such as a genuine opening of the economy, institutional transparency, and recovery of trust in the peso—any decrease in the currency will be temporary. In fact, in the cases analyzed in the region, governments that ignored these signals saw how downward corrections were almost inevitably followed by even more accelerated rebounds in the depreciation of their currency.

So what can we expect moving forward? It is highly likely that the dollar's exchange rate will resume its upward trend once the speculative "shock" has passed. All incentives for dollar demand persist: the population continues to flee from the peso as a store of value, and businesses require foreign currency to operate in an environment of rising imports and market shortages. Governments, both in Cuba and in other countries that have undergone similar situations, have shown significant difficulties in maintaining any relative exchange rate stability when they do not credibly address the root of their economic problems. You can delve deeper into the phenomenon of speculation and overreaction by reading this analysis.

In summary, the decline of the informal dollar in the Cuban market serves more as an illusion than a genuine change in direction. The history of the region shows that, without a structural transformation of the economy, everything that rises and falls in the black currency market is influenced more by cycles of panic and collective enthusiasm than by real improvements in the macroeconomic reality. It is clear, then, that Cuba is caught in this unsustainable loop until it decides to address its fundamental weaknesses, as dictated by the lessons of Latin America's economic history.