The informal currency market in Cuba is witnessing significant fluctuations in the exchange rates of the United States dollar (USD), euro (EUR), and the Freely Convertible Currency (MLC). As of January 11, 2025, the USD is valued at 340 Cuban pesos (CUP), the EUR at 341 CUP, while the MLC stands at 240 CUP.
Exchange Rates in Cuba on Saturday, January 11, 2025 - 10:00 AM
USD to CUP: 340 CUP
EUR to CUP: 341 CUP
MLC to CUP: 240 CUP
Since the start of January, there's been an upward trend for both the USD and the EUR in the informal market. On January 5, the USD saw a spike of five CUP within a day, reaching 305 CUP, while the EUR also experienced notable increases.
This pattern highlights a rising demand for foreign currencies, driven by the dollarization of the Cuban economy and the opening of new venues operating in USD. The recent opening of a supermarket at 3rd and 70th in Havana, selling goods exclusively in dollars, has heightened the population's need to obtain these currencies to purchase basic necessities.
Conversely, the MLC has been on a downward trajectory, trading at 240 CUP on January 11, 2025, down from 265 CUP in December 2024. This decline is attributed to consumer preference for the USD and EUR, seen as more stable and widely accepted for transactions both domestically and internationally.
The volatility in the informal currency market underscores Cuba's complex economic scenario, characterized by high inflation, scarcity of essential goods, and limited access to foreign currencies. These fluctuations directly affect citizens' purchasing power, who are increasingly challenged to meet their daily needs.
Uncertainty Surrounding the MLC Amid Partial Dollarization
The recent partial dollarization of Cuba's economy has cast doubt on the future of the Freely Convertible Currency (MLC). Initially introduced by the government to capture foreign exchange, the MLC has been used in state-run stores for essential goods. However, with the emergence of outlets operating solely in USD, the relevance and stability of the MLC are now under scrutiny.
Reports indicate that the partial dollarization impacts strategic sectors like wholesale and retail trade, tourism, and foreign trade. This policy has heightened the demand for foreign currencies, particularly dollars and euros, at the expense of the MLC. The preference for more stable and universally accepted currencies has led to a depreciation of the MLC in the informal market, where its value has fallen compared to the dollar and the euro.
Additionally, instances have been reported where state-run stores have ceased accepting MLC payments, limiting transactions to cash dollars or cards backed by foreign currency. This development has sparked concern among citizens holding MLC balances, as they find their purchasing power restricted and fear a potential demonetization of this currency.
The uncertainty surrounding the MLC reflects the complexity and volatility of Cuba's economic landscape. The coexistence of multiple currencies and the introduction of new economic measures without clear and transparent communication from the government have fostered public distrust in current monetary policies.
Understanding Cuba's Currency Challenges
What factors are driving the demand for foreign currencies in Cuba?
The demand for foreign currencies in Cuba is driven by the dollarization of the economy and the opening of new establishments that operate in USD, requiring citizens to obtain these currencies to purchase basic goods.
Why is the MLC losing value in Cuba's informal market?
The MLC is losing value due to consumer preference for the USD and EUR, which are considered more stable and universally accepted, leading to its depreciation in the informal market.
How does currency volatility affect Cuban citizens?
Currency volatility affects Cuban citizens by eroding their purchasing power, making it increasingly difficult for them to meet their daily needs amid high inflation and scarcity of goods.