The informal currency market in Cuba has witnessed another rise in the price of the Freely Convertible Currency (MLC), which climbed to 275 CUP this Monday, marking a five-peso increase compared to Sunday. This surge occurs even as fewer stores are accepting this currency, yet the upward trend for the MLC persists.
Meanwhile, the U.S. dollar remains steady at 340 CUP, and the euro continues to be valued at 345 CUP, unchanged since the previous day, according to the reference rate from elTOQUE.
Monday's Exchange Rate in Cuba
Date: February 24, 2025 - 05:00
- Dollar (USD): 340 CUP (no change)
- Euro (EUR): 345 CUP (no change)
- Freely Convertible Currency (MLC): 275 CUP (+5 CUP)
Reasons Behind the MLC's Persistent Rise
Despite the government's recent efforts to partially dollarize the economy, converting various stores that previously operated in MLC to now only accept U.S. dollars in cash or international cards, the MLC's increase in the informal market may seem paradoxical. However, several factors contribute to this trend:
Product Shortages in State-Owned Stores
Although many shops have stopped operating in MLC, those that still do remain crucial for purchasing essential goods like cigarettes, eggs, yogurts, sausages, detergent, and soap. The scarcity of these items has led to a heightened demand for MLC to acquire and resell them at significantly higher prices in Cuban pesos.
Resale Strategies
Many Cubans use MLC to buy products from official stores and resell them in CUP at inflated prices. This is driven by high demand and limited alternatives to obtain these goods within the formal economy.
Market Correction
Economist Pavel Vidal suggests that this increase might be a "temporary correction" following the sharp decline of the MLC earlier this year. He noted that such fluctuations are typical in markets characterized by price rigidity and a lack of liquidity.
Economic Uncertainty
The ongoing economic crisis and limited access to foreign currency through official channels lead many Cubans to secure their purchasing power via the informal market, further driving up MLC demand.
The Future of Cuba's Currency Market
Although the recent spike is notable, the long-term trend remains uncertain. While the dollar and euro stay stable, the MLC might continue its upward trajectory in the short term if the demand for essential products keeps pressuring the market.
Nevertheless, the gradual dollarization of the economy and the closure of MLC stores could signal a decline for this currency in the medium to long term.
Understanding Cuba's Informal Currency Market
Why is the MLC still rising in value despite fewer stores accepting it?
The increase in MLC value is driven by the scarcity of essential goods, which are still available in some stores that operate using MLC. This scarcity creates a demand for the currency, leading to its rise in the informal market.
How does the economic crisis affect the MLC's demand?
The persistent economic crisis limits access to foreign currencies through official means, prompting individuals to seek stability in their purchasing power by turning to the informal market, thereby increasing MLC demand.
What factors could lead to a decline in the MLC's importance?
The gradual dollarization of the economy and the closure of stores that accept MLC could reduce the currency's significance over time, as fewer transactions occur in MLC.