The informal currency market in Cuba woke up on Tuesday to a mixed bag of signals: the U.S. dollar surged by ten pesos, nearing its historical peak, while the euro and the MLC (Freely Convertible Currency) experienced slight declines, underscoring the extreme volatility that characterizes the Cuban exchange market.
Dollar Nears Record Peak
The American currency is trading this Tuesday at 680 Cuban pesos (CUP), just 15 CUP shy of the 695 CUP it reached on June 21, which remains its all-time high in the informal market.
Since July 1, the dollar has shown steady growth, climbing from 610 CUP. In just six days, it moved up the ranks: 645 CUP on July 4, 660 CUP on July 5, 670 CUP on Monday, and now 680 CUP this Tuesday.
Before this upward trend, the dollar had dipped to 605 CUP on June 30—a 90-peso correction over nine days post-June peak—though this downturn proved to be short-lived.
Euro and MLC Experience Minor Drops
The euro fell by five pesos on Tuesday, settling at 765 CUP, still distant from its record of 800 CUP set on June 21. In recent days, the European currency had also rebounded after a sustained decline.
The MLC is being sold this Tuesday at 490 CUP, also seeing a slight reduction.
According to data from elTOQUE, recent offers show significant dispersion:
- The euro ranges between 720 and 800 CUP.
- The dollar ranges between 610 and 750 CUP.
- The MLC ranges between 450 and 500 CUP.
Impact of New Economic Measures
The peak on June 21 had a clear trigger: a package of 176 economic measures approved by the National Assembly on June 19, which, for the first time since 1959, includes authorization for private banking, private exchange houses, and a digital currency market.
The informal market's reaction was immediate and excessive.
ElTOQUE describes this pattern as "overshooting" or currency overreaction: "When expectations change, be it due to an economic policy announcement, a rumor, or a crisis of confidence, the price of foreign currency spikes beyond what the economic fundamentals justify."
The same analysis warns that the subsequent correction is not final: "When the market fully grasps the true magnitude of the change, it adjusts. But the adjustment is never complete. The new floor is higher than the previous one."
Another factor fueling the rises is the so-called "herd effect": "People buy foreign currency not because they have rationally assessed the context but because they see others buying, and the fear of being left behind fuels the rise."
Experts Question the Reforms
Independent economists are skeptical of the official optimism. Pedro Monreal González labeled the 176 measures as a "monster" or "deformed hybrid" on June 26, cautioning that "the numbers don't add up."
Pavel Vidal, from the Monetary and Financial Observatory, points to the structural irrationality of the market: "Cuban exchange markets sometimes move exuberantly based on certain waves of optimism or pessimism."
The gap between the official rate set by the Central Bank—which pegs the dollar at 585 CUP and the euro at 669.53 CUP—and current informal quotes illustrates the magnitude of structural distortion.
ElTOQUE summarizes the trap in which the market operates: "As long as these conditions remain unchanged—real currency shortages, triple-digit inflation, fiscal deficit, and lack of confidence in the Cuban peso—the rate ends up rising again."
The Cuban peso has lost over 95% of its value against the dollar in just six years: from 42 CUP in 2020 to the 680 CUP of this Tuesday.
Understanding the Cuban Currency Market
What caused the recent spike in the U.S. dollar in Cuba?
The recent spike in the U.S. dollar in Cuba was triggered by a package of 176 economic measures approved by the National Assembly, which includes the authorization of private banking, private exchange houses, and a digital currency market.
Why is the Cuban peso losing value?
The Cuban peso is losing value due to factors like real currency shortages, triple-digit inflation, a fiscal deficit, and a lack of confidence in the peso, which lead to an unstable and volatile exchange market.
How do economic measures affect the currency market in Cuba?
Economic measures, especially those introducing private banking and exchange markets, can lead to immediate and sometimes excessive reactions in the currency market, causing spikes or drops in currency values.