The new foreign exchange market in Cuba provoked a speculative reaction that took the dollar to a record price in the parallel market, only to fall. This rise and fall “is crazy”, say the Cubans, who want to buy the currency to face the economic crisis, travel, or emigrate.
“This here is crazy, because there is a lot of instability with the price of the dollar,” Jaqueline Reyes, a 46-year-old university student waiting for her visa to travel, told AFP.
At the beginning of the month, the US dollar reached a record price of 200 Cuban pesos in the informal market, well above the 120 pesos in the country’s exchange offices.
In just three weeks, however, the currency dropped to 165 Cuban pesos on the streets, according to El Toque, an independent website that publishes the price of the dollar on the parallel market daily.
The analysts’ explanation: despite the scarcity of dollars and the speculation that drives its price, the high value reached by the American currency discourages buyers.
With the intention of dismantling the parallel market, the government launched a formal exchange market in August, fixing the dollar price at 120 pesos.
For Pavel Vidal, head of the Department of Economics at the Pontificia Universidad Javeriana in Colombia, in August and September there was an “exaggerated reaction”, which was due “to the effect of expectations” by the new price.
The exchange rate “devalued too much (the peso fell and the dollar rose), above its long-term equilibrium value and, now in October, this situation is being corrected”, says the expert.
Scarcity and speculation
“The strong demand for foreign currency to emigrate and the economic crisis explain the devaluation of the peso”, says Vidal.
More than 200,000 Cubans arrived in the United States irregularly in a year, most fleeing the worst economic crisis on the island in nearly 30 years, caused by the pandemic and the strengthening of the Washington embargo.
Most of these Cubans travel to Nicaragua, which does not require a visa, from where they head north. This crossing can cost up to US$ 12,000.
To get the American currency, “it is necessary to go, inevitably, to the informal market, because the State does not have enough currency to supply all the demand”, says Jaqueline Reyes.
Exchange houses sell a limit of one hundred dollars per person.
The newspaper “Granma” published an article in mid-October, claiming that a “dishonest and illegal” business had sprung up around exchange offices.
Many people “stand in line [para] then sell your turn”, while others take friends to each buy one hundred dollars at the official rate of 120 pesos and immediately “resell them at 160, or 170 pesos”.
Reyes confirms that it is almost impossible to buy dollars at exchange offices, because they sell out in a few hours.
“Unfortunately, 70% of people who migrate have to get rid of all their belongings, houses, everything they had to build”, in order to obtain foreign currency, emphasizes the woman.
‘Outstanding price’
José Antonio Peña, a 56-year-old chef, maintains that he has been hurt by the fall in the price of the dollar.
“My house, which used to cost US$ 10,000, is now worth 5,000”, due to the devaluation of the peso, he says worriedly.
For Cuban economist Mauricio de Miranda, the fall in the dollar is not due to a greater supply of the American currency, “but to a drop in demand produced by the very high price reached”.
Cubans, especially those who travel to buy products to resell on the island, are not willing to buy the currency at these prices, because their business may “not be profitable”, explains the economist.
The value of the US dollar began to soar on the parallel market in January 2021, when the government implemented a painful financial reform and set its price at 24 pesos per unit.
Since then, “things have gotten out of hand […] Today you go to sleep with one price, and tomorrow you wake up with another”, describes Reyes, who assures that Cuba “has never experienced a situation so raw, economically, as it is now”.
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