The Central Bank of Cuba starts playing Monopoly

What the Central Bank has undertaken is yet another measure that reflects the absolute lack of control within the Cuban economy, which affects, in this case, the monetary circulation: the issuance of new high denomination peso bills. They call it, to further confuse Cubans, “updating the country’s monetary cone,” but in reality, it is an “old” measure by poor central banking managers. When inflation spirals out of control due to the expansion of the money supply, issuing high denomination bills may serve as a temporary fix, but it is far from a solution. In the case of Cuba, it is neither.

But let's take it step by step. What is the reason that the Central Bank of Cuba has to issue, for the first time in the economic history of the country, banknotes in two new denominations, 2,000 and 5,000 Cuban pesos? Is this a reckless decision by the institution that is supposed to contribute to the stability of the currency for all Cubans? Or could this perhaps be yet another experiment to try to weather the current humanitarian crisis in the country?

Of course, they have not chosen the best time. Nevertheless, what is important is that there are no real reasons of sufficient weight to adopt a measure of this magnitude that, even from a broader perspective, may seem inadequate for achieving the intended goals. It is worth remembering that the state of the Cuban economy, described as a serious stagflation, does not allow for such risky maneuvers. The outcome could backfire.

The day before, it was announced that the new banknotes would come into circulation immediately, starting on April 1, 2026, first in Havana, with the initial issuance of 5,000 Cuban pesos, gradually expanding throughout the country. The same approach will be taken with the other banknote of 2,000 Cuban pesos.

It is surprising that such a hasty decision has been made by the Central Bank, especially at such a critical moment as the current one. As noted by the state press, the issuance of new high-denomination bills aims to facilitate cash transactions, given the high price levels that most goods and services in the economy are reaching. Instead of needing to carry large amounts of cash for any transaction, Cubans will now be able to reduce cash logistics costs and gain efficiency in operations during these current inflationary times with these large bills.

What is it that truly exists behind the issuance of these bills?

The answer is inflation, exchange rate, and uncontrollable public deficit. Nothing about productivity or economic growth. Let's break it down.

First of all, the inflation measured by the CPI [Consumer Price Index] based on 100 in 2010 has, last February, averaged above the index of 500, which means that the prices of goods and services in the basket that makes up the CPI have increased fivefold. From 2020 to 2025, inflation has grown by 206%.

Results like these signify a notable impoverishment of the population, as salaries or pensions, for instance, have not increased even by half. The loss of purchasing power also impacts the state sector, since the services (mostly free) provided to the population are similarly affected by this general price increase. In other words, what cost 100 pesos in 2010 now costs over 500, or more, 15 years later. Let us imagine the situation of financial assets, such as bank deposits, and one can observe the overall loss experienced.

Secondly, the same can be said about the exchange rate. Starting from 2021, when the Tarea Ordenamiento set an exchange rate of 1 dollar to 24 pesos, and looking at the current rate in the informal market, which is the only one that can actually provide foreign currency consistently, the relationship has changed to 1 dollar to 500 pesos. In this case, the depreciation of the Cuban peso has been 95%, meaning that 1,000 pesos from 2020, which at that time allowed access to 42 dollars at the exchange rate, have now become just two dollars in 2026. The loss of value of the Cuban currency against international currencies is a clear example of its weakness in a simple bilateral context. If a purchasing power parity calculation is conducted using a basket of currencies, the loss of value could be even greater.

We therefore have high inflation and a loss of value of the national currency in the absence of economic growth. Since 2021, the Cuban economy has experienced an overall decline of 12.3%, which explains the current recession.

So, what do we have left? We must go to the root of all the imbalance that threatens to make the Cuban economy disappear into a black hole. I am referring to the weight of the State in the economy, measured by any indicator, and its influence on the amount of money circulating in the economy. The data only goes up to 2024, as the statistics for 2025 have yet to be published, but considering the current crisis environment, the available indicators may have worsened significantly by 2025.

According to the National Office of Statistics and Information of Cuba (ONEI), the public deficit (fiscal balance) reached a total of 79,528 million pesos. In terms of GDP, the deficit percentage stood at 7.3%, after averaging around 11% from 2021 to 2023. To conclude, the indicator of money supply (circulating money) accounted for 42.7% of GDP. Lastly, a figure that illustrates the "deadweight" impact of the communist state on the Cuban economy is that state budget expenditures amounting to 464,967 million pesos represented 43% of the economy's GDP.

These factors, including monetary mismanagement, a lack of economic growth, and the excessive weight of the state in the economy, confirm the origin of the severe and persistent inflation and the devaluation of the Cuban peso simultaneously. An inefficient peso, concentrated in very low-profit activities within the state sector, which is also affected by the price spiral generated.

It is not surprising that in light of such a scenario, the Central Bank of Cuba has decided to issue these banknotes, which, as a tribute to the Castros (possibly the last), feature the image of Celia Sánchez Manduley.

Therefore, starting from April 1, when these bills entered circulation, an item costing 30,000 pesos will only require six 5,000 peso bills or fifteen 2,000 peso bills for the transaction. With lower denominations, the need for cash becomes greater. The communists seem to believe the absurd notion that reducing the amount of cash needed for economic transactions might help control prices. It appears they are concerned that Cubans will end up carrying wheelbarrows full of pesos to buy trivial items. Because, in this regard, they once again demonstrate a significant ignorance of how the economy works, the solution to the problem of items that have increased in price to 30,000 pesos does not lie in issuing higher denomination bills, but rather in adopting economic policies that help control and stabilize prices, and it does not seem that they are heading in that direction. The experiences seen in other countries have not yielded results or have required effective adjustments and controls that, in the Cuban economy, simply seem unfeasible.

Are we looking at an announcement for collectors of Cuban communist currency? Perhaps. Some forgetful tourist will leave the country with some of these bills that will continue to be worthless in international markets and will ultimately get lost in some drawer, forgotten. It’s nothing like that Cuban peso from 1958 that was valued at parity with the dollar in all denominations.

Sixty-seven years later, let us not forget that the highest denomination bill, 5,000 pesos, currently equates to 10 dollars, and the 2,000 pesos bill to four dollars. If things continue as they are, these values may decrease even further in a few months, leading one to think that the leaders of the Central Bank have underestimated the situation and should have increased the value of the bills. This is what happens when economic decisions are made hastily and without proper consideration.