The relentless decline of foreign currencies in Cuba's informal market continues, with both the U.S. dollar and the euro hitting new lows this Sunday. The American dollar has seen an 18-day streak of steep and sudden depreciation, losing over 100 pesos during this period. This marks an unprecedented rate of decrease since elTOQUE began tracking price fluctuations in the island's informal currency market.
On the previous day, the dollar dropped by 5 points to trade at 290 Cuban pesos (CUP). However, this Sunday, it plummeted by another 8 points, reaching 282 CUP. Similarly, the euro fell by 5 points, from 300 CUP yesterday to 295 CUP today. Meanwhile, the freely convertible currency (MLC) remained stable at 260 CUP, unchanged from the previous day's rate.
Current Exchange Rates as of 02/06/2024 - 6:22 AM in Cuba
According to elTOQUE:
- USD to CUP: 282 CUP
- EUR to CUP: 295 CUP
- MLC to CUP: 260 CUP
Alternative platforms report:
- USD: Buy at 278 CUP, Sell at 288 CUP
- EUR: Buy at 288 CUP, Sell at 296 CUP
- MLC: Buy at 250 CUP, Sell at 258 CUP
It should be noted that the informal exchange rates in Cuba provided here are not officially recognized or backed by any financial or governmental entity.
No Safety Net: Foreign Currencies Freefall in Cuba
Recently, independent media outlet elTOQUE, which has been documenting the ups and downs of key foreign currencies in Cuba's informal market since 2019, shared its perspective on the sharp drop in value for USD, EUR, and MLC.
"The announcement of the resumption of remittance services to the island via Western Union (on May 9) and the approach to a closed value (400 CUP per USD) might have influenced market sentiment," noted economist Pavel Vidal Alejandro in a detailed article on the subject.
Vidal Alejandro explained that a "new balance in consensus and market participant attitudes" has emerged. In other words, an increasing number of people began to consider the high prices of foreign currencies as unsustainable and chose to sell before a potential drop, which increased supply. He indicated that since mid-May, coinciding with the start of the decline in all three reference currencies, there has been a notable rise in the supply of foreign currencies monitored in virtual spaces.
Additionally, elTOQUE pointed out that it is natural for “temporary corrections to occur after an extended period of rising market values.” Since 2022, there have been six significant and consecutive drops in currency values, lasting weeks in some cases, but they have subsequently rebounded.
Is the Cuban Peso Truly Gaining Value?
Vidal Alejandro argued that the fundamental factors causing internal and external economic imbalances in Cuba have not changed, and thus the current inflection in the exchange rate should not be associated with a trend shift.
"Over the past four years, the value of the Cuban peso has consistently depreciated, driven by high fiscal deficits, excessive issuance of Cuban pesos, contraction of national production and exports, increasing reliance on imported goods and inputs, dollarization, emigration, and persistent inflation," he stated, indicating that the crisis continues with no reason for the peso to reverse its devaluation trend.
Moreover, the growth in tourism has slowed, export goods have fallen short of expectations, and the sugar harvest remains unstable. As of February this year, the state budget imbalance exceeded 20 billion pesos. Cuban economist Emilio Morales also weighed in this week in an interview with CiberCuba, asserting that it is "impossible" for the Cuban peso to have gained ground against the dollar on its own, attributing the drop in informal currency prices to maneuvers by the "ciberclarias" at Cuba's University of Computer Sciences (UCI).
Morales claimed that the only news that could naturally revalue the peso would be "if the government fell," as this would finally open the door to systemic change. He also dismissed the idea that the decline in USD, EUR, and MLC prices in Cuba is due to a supposed injection of foreign currencies into the informal market.
"Where would they get the foreign currencies when they have daily blackouts because they can't buy oil? It would have to be a multi-million dollar injection, which they don't have," he questioned.
When asked if any mechanism other than the intervention of the "clarias" could control inflation this week, the economist responded bluntly. "That's a lie. Cuba doesn't produce. Where is the productive backing for that to happen? It will probably return to its course and surpass the 400 peso barrier," he asserted.
Understanding the Drop in Foreign Currency Value in Cuba
Given the current economic situation in Cuba, many questions arise about the factors contributing to the drop in foreign currency values. Below are some frequently asked questions and their answers.
What caused the recent drop in the value of the U.S. dollar and euro in Cuba?
The announcement of the resumption of remittance services via Western Union and market sentiment influenced by the approach to a closed value of 400 CUP per USD contributed to the drop.
Is the Cuban peso really gaining value?
No, the fundamental factors causing economic imbalances in Cuba have not changed. The current inflection in the exchange rate should not be seen as a trend shift.
What could naturally revalue the Cuban peso?
Economists suggest that only significant systemic changes, such as a government overhaul, could naturally revalue the Cuban peso.
Is there a foreign currency injection in the informal market?
No, there is no evidence of a significant injection of foreign currencies into the informal market, given the economic constraints Cuba is facing.