What Lies Ahead for the Dollar in Cuba? Economist Analyzes Currency Exchange Changes

Cuban economist Pedro Monreal has expressed skepticism regarding the Cuban government's recent announcement of a so-called "new exchange rate regime," arguing that it lacks the basis to be deemed as such. In a series of posts on the social media platform X, Monreal contended that the proposed adjustment does not signify a substantial shift in the current exchange framework. Instead, the fixed rate remains, with minor alterations in its secondary component for the "population and non-state sector."

"There is currently no foundation to support the claim of a shift to a 'new exchange rate regime' in Cuba. Essentially, the fixed exchange rate regime remains, with variations in the secondary exchange component for the 'population and non-state sector,'" asserted the prominent Cuban economic analyst.

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

Economic Implications and Concerns

This scheme, which merged elements of fixed and flexible rates, was deemed "economically grounded" at the time, although then-Minister of Economy Alejandro Gil Fernández acknowledged it did not represent an equilibrium exchange rate. In this context, Monreal indicated that the recent December 2024 announcement mirrors the 2022 strategy. Although the government uses the term "floating rate," the economist cautions that this could lead to confusion and lack of transparency.

Rather than establishing a genuine currency market with a balance between buying and selling, Monreal suggests that the scheme functions more as a mechanism for the State to collect foreign currency. He notes that the degree of flexibility seems to be the only notable difference between the actions of 2022 and the current ones.

The announcement of a "new exchange rate regime" comes amid a profound economic crisis in Cuba, characterized by the ongoing depreciation of the Cuban peso and the State's inability to stabilize the informal market. Despite official promises, the document regulating this regime does not clearly outline how equitable access to foreign currency will be guaranteed or how the inflationary impact on essential goods prices will be controlled.

Critiques of the Proposed Model

Previous reports highlight that the government's strategy prioritizes the acquisition of foreign currency through state purchases, limiting the involvement of the private sector and leaving the population at a disadvantage. Moreover, the proposed model does not address the structural causes of the currency crisis, such as the lack of confidence in the national currency and reduced domestic production.

The announced scheme has also faced criticism for its potential to exacerbate economic inequalities. The reliance on informal rates to set initial values introduces uncertainty in an already volatile market. Monreal emphasized that limited access to state currency sales perpetuates informality and hinders economic stability.

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

Monreal's critiques highlighted the inconsistencies of the new currency exchange scheme announced in Cuba. Far from representing a structural change, the economist argued that the model perpetuates existing monetary policies, with marginal adjustments that fail to address the system's deficiencies.