Cuban Government's Inability to Offer a Better Market Fuels Informal Economy

This weekend, the Cuban Ministry of the Interior announced the dismantling of an illegal currency network that allegedly moved over 1,000 million pesos and 250,000 dollars between the United States and Cuba. According to official reports, a structure existed within the island for distributing national currency outside state control, with a supposed organizer based in Miami.

This operation comes amidst the Cuban government's ongoing struggle against the informal dollar exchange rate. Not only are they cracking down on clandestine currency networks, but they are also targeting El Toque, accusing it of "manipulating" the economy by publishing an exchange rate perceived as more realistic than the official one.

The crux of the issue is that the informal market thrives due to the Cuban government's failure to maintain a viable official market. This is not caused by underground networks, digital platforms, or "external actors," but rather by the inherent structural flaws within Cuba's economic model.

The State Lacks the Reserves for a Stable Exchange Rate

A credible currency market requires a supply of dollars—dollars to sell, to stabilize the exchange rate when it rises too high, and to enable people to actually exchange CUP for USD at the rate set by the Central Bank. However, Cuba lacks these essential reserves.

With international reserves at critical levels, lacking transparency, and without a steady income stream, the official exchange rate remains an illusion. Declaring that 1 USD equals 100 CUP without the ability to sell dollars at this rate is not an official exchange rate; it's a mirage.

Government's Inability to Control Incoming Currency

Historically, remittances have been Cuba’s primary source of dollars. Today, official data shows that less than 10% of these remittances come through state channels.

So where does the rest go? Into informal networks like the one the Ministry claims to have dismantled, alternative operators, and personal transactions.

This occurs because the state fails to provide a reliable, swift, and transparent means to send money to the island. Informal channels are faster, more efficient, and offer better rates, prompting people to favor the unofficial market.

Lack of Trust in the Official Market

Trust cannot be mandated; it must be earned. No one will exchange dollars at an official rate in a country where rules change overnight, accounts are frozen, transfers blocked, arbitrary caps imposed, and purchasing decisions controlled.

The informal market is preferred due to its predictability compared to the official one. As harsh as it may sound, it is the truth.

Insufficient Foreign Currency Production

A stable exchange rate requires a consistent influx of dollars from exports, tourism, foreign investment, and domestic production. Yet, Cuba falls short in all these areas—the export market is weak, tourism is declining, foreign investment is dwindling, and national production is at historic lows.

Without a solid economic base, sustaining an official currency market is impossible.

Fiscal Policy Undermines Market Stability

The government finances its deficit by printing more pesos, akin to diluting cheap rum with water, diminishing its value with each new peso issued without backing. The Central Bank’s continued currency production to cover deficits will only further destabilize the exchange rate, regardless of its “official” status.

Multiple Parallel Markets

In Cuba, multiple "official" markets exist for the same dollar—CUP, MLC, cash, cards, special stores, remittances, private entrepreneurs, importers, GAESA. No country can stabilize its currency with such a fragmented system. The informal market is not the cause of chaos but a consequence of official disarray.

Crackdowns on Currency Traders Miss the Root Cause

The government boasts about police operations and repeats that illegal networks "destabilize the country." However, the real threat to stability is a government unable to provide a functional official market. Dismantling one network today only leads to the emergence of three more tomorrow, as demand persists and the state cannot meet it.

The informal market exists because the government cannot provide a better alternative. The war against El Toque’s exchange rates, the arrests, platform shutdowns, and Ministry operations are mere stopgaps. The underlying issue is the state’s lost capability to manage the currency market.

Lacking reserves, trust, production, monetary discipline, a unified market, and institutional capacity, Cuba cannot maintain a stable official exchange rate. Until the government addresses the root causes instead of symptoms, the dollar will continue to slip through any gap it finds, and the informal market will remain the only true reflection of reality.