Can the "currency transformation" save the economy of the Cuban regime?

The Central Bank of Cuba (BCC) activated a new foreign exchange market scheme that, starting from December 18, 2025, introduces a daily floating exchange rate alongside the two existing rates (1×24 and 1×120).

The regime presented the measure as a step towards the much-promised "currency convergence," economic modernization, and greater transparency. However, a technical and empirical analysis shows that it is not a structural reform, but rather a cosmetic adjustment with deep systemic risks.

Essentially, the government seeks to capture and centralize official currency, displace the informal market, and "regulate" the economy through a rigid and top-down controlled system.

The problem is that this type of scheme —widely studied in economic literature— tends to generate profound distortions, poor allocation of resources, and the persistence of parallel markets in an economy where the real price of currency is defined by the informal market.

What is an exchange rate regime and why does it matter?

The exchange rate is the price at which one currency is exchanged for another and is a central element of the economic policy of any country: it affects domestic prices, competitiveness, inflation, and foreign trade.

Their determination by supply and demand forces is a fundamental principle of international finance. When a government intervenes in a segmented manner —as Cuba proposes— it enters the realm of multiple exchange rate systems, which have been widely discussed by the International Monetary Fund, economists, and multilateral organizations.

Multiple exchange rate systems consist of different rates assigned based on the type of transaction and the economic actor. In theory, they can protect strategic reserves and provide temporary preferences in times of crisis, but they also distort price signals and the efficient allocation of resources.

Real economy vs. official discourse: The trap of multiple regimes

Cuban authorities argue that the three currency segments—two fixed and one floating—will "organize the market" and provide legal access to foreign currencies. According to their narrative, the floating rate would be more competitive than the informal one and would bring families and businesses closer to a "safe" official market.

However, theoretical and empirical experience suggests otherwise:

1. Price distortion and poor allocation of resources

A system with multiple rates does not produce a single equilibrium price, but rather artificial prices that distort resource allocation and disincentivize efficient production.

For example, the sectors favored by more advantageous rates will receive resources that do not necessarily correspond to their actual competitiveness. This flaw has been described in classic works on multiple systems, which indicate that "the allocation of resources is no longer made according to prices, but rather through political decisions that lack economic logic."

This is not an abstract problem: companies and individuals will tend to arbitrate between official and unofficial rates, favoring activities linked to more favorable rates or the informal market, introducing perverse incentives to conceal transactions and divert them.

2. Difficulty in officially adjusting

The World Bank's literature on multiple systems documents that these encourage the persistence of black markets because, faced with an overvalued official parity, economic agents prefer to operate outside the official circuit.

The risk is that the official exchange rate does not adjust quickly to the actual economic conditions, perpetuating the gap with the parallel market.

In the Cuban case, the official "floating" rate could end up being managed at the discretion of the BCC itself, without truly reflecting the actual supply and demand, as often happens in models of partial or managed markets.

3. Incentives for corruption and evasion

Classical literature documents that when there are multiple exchange rates, arbitrage profits encourage rent-seeking behaviors and tax evasion schemes, such as concealing official income to sell it in the parallel market at higher rates.

This translates to risks of collusion among individuals, state-owned enterprises, and political controllers, creating channels of structural corruption that undermine the purpose of "regulating" the market.

The informal market will not disappear: Illusion or strategy?

The official propaganda itself acknowledges that the informal market will not be eliminated immediately, which is essentially an admission of failure.

The unofficial market—where the dollar and euro are traded freely according to real supply and demand—will continue to serve as a benchmark for the entire economy because there is no other credible measure of value in Cuba.

The research on parallel currency markets shows that when strict official controls are in place, the black market thrives on the discrepancy between the official rate and the real value that agents assign to the foreign currency.

This phenomenon has been documented in multiple developing countries where various types merged with parallel rates that reflected the actual depreciation of the informal market.

In situations like the one in Venezuela, where official and parallel exchange rates have diverged significantly, authorities have even gone so far as to penalize transactions conducted at unofficial exchange rates, indirectly acknowledging the dominance of actual quotations outside the state-controlled circuit.

There are no reserves, there is no production, there is no growth

Beyond the deficiencies of the theoretical engineering of a multiple-rate system, Cuba's fundamental problem is structural:

• There are not enough international reserves.
• Exportable production has contracted dramatically.
• The internal production capacity is insufficient to support solid growth.
• The demand for private currency far exceeds the official supply.

Without robust exports or confidence in the national currency, an "official" foreign exchange market lacks a material basis.

In the absence of sufficient reserves, the only thing that can happen is that the state system offers rates that most of the population and businesses do not accept, strengthening the informal market.

Conclusion: A facade for an increasingly ugly crisis

The measure of introducing a floating rate alongside two fixed rates does not constitute a liberal market reform, nor a monetary policy consistent with long-term objectives. Rather, it is an attempt by the regime to:

1. Capture currencies that circulate outside of state control.
2. Collect MLC within the state banking system to sustain strategic imports.
3. To offer an illusion of flexibility that does not correct the core distortions.

The literature on multiple exchange rate regimes is clear: these policies, rather than solving problems, tend to perpetuate dual markets, generate arbitrage, erode trust in the official currency, and complicate resource allocation.

In Cuba, where production, investment, and reserves are at their lowest, the likely outcome will not be stability but an increasingly formal market disconnected from the real value of the currency, persistence of the informal sector, worsening inequality, and greater pressure on households that depend on remittances and savings in foreign currency.