Currency Drop: Informal Cuban Market Sees Decline in Dollar, Euro, and MLC Values

The informal currency market in Cuba experienced a notable downturn this Friday, with all three key currencies showing declines.

According to the independent outlet elToque, the U.S. dollar fell by 10 pesos, settling at 670 CUP.

The Euro also saw a decrease, albeit a modest one, dropping two pesos to reach 758 CUP.

The most significant drop was noted in the Freely Convertible Currency (MLC), which plummeted 42 pesos, landing at 448 CUP.

Market Instability Amid Economic Uncertainty

This sharp decline contrasts with the market's stability from Thursday, when the dollar maintained its position at 680 CUP for three consecutive days, the euro was at 760 CUP, and the MLC was at 490 CUP.

U.S. Dollar and Euro: Mild Declines

The U.S. dollar has been extremely volatile for weeks. After reaching a historic high of 695 CUP on June 21, it dropped to 605 CUP by the end of that month. However, it began climbing again from July 1, stabilizing at 680 CUP between July 7 and 9. This Friday, it fell back by 10 pesos to 670 CUP, matching its value from July 6.

The euro, which hit an unprecedented 800 CUP on June 21, has been gradually correcting since. Last Tuesday, it dropped five pesos to 760 CUP, and this Friday, it decreased by another two pesos to 758 CUP.

MLC: The Day's Major Decline

The most striking decrease of the day was in the MLC, which fell 42 pesos in a single day, from 490 to 448 CUP. Analysts from elToque attribute such abrupt movements to the phenomenon known as overshooting or exchange rate overreaction. This can occur due to changes in expectations, such as economic policy announcements, rumors, or a crisis of confidence, leading the foreign currency price to surge beyond what economic fundamentals justify.

The same outlet also highlights the "herd effect" as a driver of volatility: "People buy foreign currency not because they have rationally assessed the context, but because they see others buying, and the fear of missing out fuels the rise."

Economic Measures and Market Volatility

This turmoil is set against the backdrop of 176 economic measures approved on June 19, the most ambitious since the Special Period, which for the first time since 1959 includes the authorization of private banks, private exchange houses, and a real-time digital exchange market.

Instead of stabilizing the market, the announcement triggered an unprecedented surge: the dollar and the euro hit record highs just 48 hours after the package's approval.

The gap between the official rate set by the Central Bank of Cuba—which places the dollar around 585-589 CUP—and this Friday's informal rate of 670 CUP reflects deep distrust in the Cuban peso and a structural foreign currency shortage on the island.

Historically, the Cuban peso has lost more than 95% of its value against the dollar in just six years, from 42 CUP in 2020 to current levels.

Future Outlook: Temporary Dip or Lasting Correction?

Independent economists caution that this Friday's declines do not guarantee a sustained change in trend. "As long as these conditions persist—real currency shortages, triple-digit inflation, fiscal deficits, and distrust in the Cuban peso—the rate will eventually rise again," say analysts closely monitoring the informal market's recent evolution.

The coming days will be critical in determining whether this Friday's declines mark the start of a broader correction or if the market resumes the upward pressure that has dominated July.