Cuban Central Bank Introduces New Floating Exchange Rate: What Does It Mean?

Juana Lilia Delgado, the head of the Central Bank of Cuba (BCC), has announced a phased transformation of the foreign exchange market, set to begin on December 18. This change aims to tackle the existing multiple exchange rates, which she noted are causing "distortions, encouraging informality, and complicating banking and fiscal traceability."

The reform seeks to address this fragmented and inefficient scenario through a three-tier exchange system, introducing a significant change: the implementation of a floating exchange rate for certain transactions. "The strategy aims to restore the purchasing power of the national currency," Delgado stated.

Backed by the Macroeconomic Stabilization Program and the Government Program, the initiative is not intended to immediately unify the exchange rates but to gradually progress towards that goal without resorting to drastic measures that could lead to sudden devaluations or further loss of purchasing power.

Understanding the New Cuban Currency Market

From December 18, the market will be categorized into three official segments:

Segment I: Fixed Rate of 1x24

This segment is designated for state operations supporting essential public services such as the supply of medications, fuel, electricity, basic goods, and transportation. Maintaining this symbolic rate is crucial to avoid drastic price increases for the public.

Segment II: Fixed Rate of 1x120

This space involves state and mixed entities that generate external revenue. The rate is designed to offer more competitive conditions for exporters and those with foreign currency earning potential, enhancing profitability and strengthening the trade balance.

Segment III: Floating Exchange Rate

This is the key innovation, targeting individuals and non-state enterprises. The rate will fluctuate based on market supply and demand and will be published daily by the Central Bank of Cuba. Although temporary, its strategic goal is to lead to eventual unification.

Economic and Political Underpinnings of the Transformation

The Central Bank acknowledges that an abrupt exchange rate unification without minimum macroeconomic conditions could lead to "sudden devaluation with greater inflationary effects than currently experienced." Therefore, Minister Juana Lilia Delgado emphasized the plan's implementation under the principles of "gradualness and temporality," drawing on transitional schemes applied in other countries with similar distortions.

Ian Pedro Carbonell, Director of Macroeconomic Policies at the BCC, stated that the goal is to "organize currency flows, strengthen financial intermediation, and form a functional, transparent, and legal exchange market." He added that the floating rate is based not on speculation but on real operations supported by the economy's conditions.

Impact of the Floating Rate on Individuals

Citizens will have the opportunity to sell foreign currency to the banking system at a floating rate, which authorities claim will be more attractive than previous official rates. For purchases, the limit remains at up to $100 per person, accessed through digital appointments at 41 existing offices. However, the availability of foreign currency remains limited.

The government has reiterated that the market will only sell what it can purchase, without exhausting international reserves. This means that availability will depend on currency acquisition through exports, remittances, transfers, and sales by CADECA.

Initial Floating Rate Published by BCC and CADECA

On Thursday, December 18, the Central Bank of Cuba and the network of Currency Exchange Houses (CADECA) released the first rates for the floating segment. The outcome was revealing, albeit expected: the US dollar is officially sold at 410 CUP and the euro at 481.42 CUP, according to the Central Bank.

This is closely aligned with informal rates reported by the independent outlet elTOQUE, which lists the dollar at 440 CUP and the euro at 480 CUP. Notably, in the case of the euro, the official rate is even higher than the informal market, marking a rare occurrence where the state acknowledges (and somewhat validates) a higher street value.

CADECA's rates reflect an operational margin:

• Dollar: Purchase: 401.80 CUP. Sale: 418 CUP (a 22-peso difference from the informal rate).
• Euro: Purchase: 471.79 CUP. Sale: 491.05 CUP (about 11 pesos higher than elTOQUE's rate).

This initial report confirms the predictable: the new floating exchange market does not "combat" the informal one but rather aligns with it to absorb and redirect operations into the institutional domain.

Future of MLC Accounts

Freely Convertible Currency (MLC) accounts will remain active, and according to Delgado, efforts have been made to "stabilize and progressively strengthen" these accounts to restore full functionality. Currently, many of these cards are declined in stores or face restrictions for international purchases.

Changes for Self-Employed Workers and SMEs

For the first time, non-state management forms have a legal channel to acquire foreign currency. They can do so from their fiscal accounts without handling cash. The maximum purchase will be up to 50% of the average gross income from the last quarter, with potential for future flexibility.

This segment will also allow direct buying and selling between economic actors and is expected to facilitate the banking of operations that currently occur informally. According to Carbonell, the aim is to "close a productive cycle without operating in illegal markets."

Can the New Currency Market Overtake the Informal Market?

In the short term, no. Authorities themselves admit that the measure is not a "magic solution." Access restrictions, limited supply, and years of distrust due to rigid exchange policies mean the informal market remains functional and attractive for many.

However, if the scheme aims to consistently capture foreign currency and offer competitive rates, it could become a real option. To achieve this, ensuring transparency, liquidity, and operational expansion will be crucial.

Medium-Term Expectations

The Cuban government maintains that this three-segment structure is temporary. "This structure will gradually converge these three official exchange rates towards a single exchange rate," Ian Pedro Carbonell assured. Yet, the recent experience with the so-called "monetary ordering" suggests caution.

Promises of transience in Cuba often extend over time. The challenge is not only technical but also political: to restore trust in monetary institutions after years of improvised measures and exchange rate asymmetries that have affected households and businesses.

Critical Perspective on the Reform

By introducing a floating rate close to the informal one, the government is acknowledging that the parallel market has long been the only real measure of the Cuban peso's value. Rather than a victory for state control, this reform seems more like a tactical concession to an undeniable reality.

Although the redesign could partially organize currency flows, its impact will be limited unless accompanied by greater structural reforms, trade openness, institutional transparency, and legal security. Exchange rate gaps affect more than just the macroeconomy: they also deepen inequality, erode real wages, and push thousands of Cubans into a subsistence system beyond state control.

The currency transformation could be a tool, but without a different national vision, it will remain an aspirin against a systemic diagnosis.