The informal currency exchange market in Cuba remains unchanged this Saturday for the second consecutive day, following a week characterized by consistent hikes in the Freely Convertible Currency (MLC). According to information from elToque, the U.S. dollar continues to be valued at 340 CUP and the euro at 345 CUP. Meanwhile, the MLC is steady at 270 CUP. This digital currency, used by the regime in certain stores and considered by some to be on the brink of obsolescence, has risen by a total of 25 pesos since February 14. Such a surge is uncommon, especially since foreign currencies have generally trended towards stability since the end of last year.
Current Exchange Rates in Cuba as of 02/22/2025 - 9:50 a.m.:
USD to CUP exchange rate according to elToque: 340 CUP.
EUR to CUP exchange rate according to elToque: 345 CUP.
MLC to CUP exchange rate according to elToque: 270 CUP.
The Surprising Increase in MLC Value
The unexpected appreciation of the Freely Convertible Currency has puzzled both Cubans and economists. The paradox lies in the fact that, despite fewer stores on the island accepting this currency, its value has risen, contrary to the expected decline in a low-demand scenario. Economist Pavel Vidal suggests this surge might be simply "a temporary correction" after a significant drop in its value at the beginning of the year.
In a recent report from the Cuba Money and Finance Observatory (OMFi) by El Toque, Vidal explained that such adjustments are common "after a sharp change in exchange rates." He also mentions that "price rigidity in consumer markets, under conditions of marked shortages, creates price differentials that drive arbitrage operations." According to the economist, this phenomenon could partly explain the temporary increase in demand for MLC.
Arbitrage and Business Opportunities
Social media has offered alternative theories. One user speculated that the scarcity of products in state-run stores accepting MLC could be a contributing factor. "There must be something, a product someone realized they could buy in MLC and sell in Cuban pesos at the elToque exchange rate for a clean profit," they explained.
In this vein, another user provided a more specific insight: "Stores selling in MLC have been stocking cigarettes, and people are frantically seeking MLC for business and personal consumption." They added, "It's called arbitrage, buying cheap and selling high with little to no risk. And a product like cigarettes, which has low price elasticity in demand, means smokers will buy regardless of the price."
Another commentator pointed out that the price of cigarettes in MLC is yielding more than double their cost in profits. "It's a quick and lucrative business. Everyone knows it's a temporary opportunity, so they're rushing, and the MLC value spikes for now," they noted.
Other users suggested that not only cigarettes are influencing this trend. Products such as eggs, yogurts, sausages, detergent, and soap might also be driving the rising demand for MLC. These goods, cheaper in stores accepting this currency, are resold in Cuban pesos with significant profit margins.
A Potentially Short-lived Trend
Despite these recent fluctuations, Pavel Vidal maintains that the changes observed over the past weeks do not alter the downward trend that the MLC has shown in the informal market over the past two years. Meanwhile, the regime is moving towards a declared dollarization of its sales, using cash or cards like VISA, MasterCard, and the Classic, which is operated by the government.
The fall from grace of the Freely Convertible Currency seems undeniable, as the Cuban regime last week reopened the doors of the Infanta and Santa Marta Market in Havana with a broad range of products but a significant change in its payment system: it no longer accepts the MLC. While it previously allowed transactions in MLC, payment is now only accepted through VISA, MasterCard, MIR, and prepaid cards issued by BANDEC, AIS, Viajero, and the Classic, the latter offering a 5% discount on purchases.
In addition to these spaces, the regime has authorized more than a dozen wholesale and retail businesses in foreign currency, eight of which are linked to the MINCIN business system.
Understanding Cuba's Currency Market Dynamics
Why has the value of the MLC increased despite low demand?
The increase in MLC value could be due to a temporary correction after a significant drop earlier in the year, as well as price rigidity in consumer markets that creates arbitrage opportunities.
What is causing the surge in demand for MLC?
The demand is driven by products available in MLC-accepting stores, such as cigarettes and other goods, which are resold at a profit in Cuban pesos, creating a temporary business opportunity.
How has the Cuban regime adapted its payment systems recently?
The regime has transitioned to accepting only VISA, MasterCard, MIR, and prepaid cards for payments, discontinuing the acceptance of MLC at certain markets.