Monday 6 February 2023

The dollar is a coveted commodity in Cuba; ‘If you don’t have you’re screwed’

The need to acquire basic necessities, which can only be bought with dollars, has accelerated the revaluation of the currency

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4 February 2023 - At The Banks - BCCR

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QCOSTARICA – (Havana) “If you don’t have dollars, you’re screwed,” Cubans repeat over and over again, a month after the entry into force of a profound financial reform in their country.

A transaction of Cuba convertible pesos (CUC) for US dollars in the middle of the street in Havana, in December 2019. AFP

This U.S. Dollar is more coveted than ever and is traded on the black market at twice the official rate.

Until the end of 2020, Cuba maintained a complex two-currency system. That changed on January 1 of this year.

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One of them is the CUC (Cuban convertible peso), which for a long time had a one-to-one parity with the dollar and which will disappear within five months.

The CUC has coexisted for 26 years with the Cuban national currency (CUP) valued at 24 units per dollar.

A month after Cuban authorities launched a strong adjustment known as “monetary reordering,” which officially reaffirmed the price of the dollar at 24 Cuban pesos, the US currency soared on the black market.

The CUC (Cuban convertible peso), which for a long time had a one-to-one parity with the dollar and which will disappear within five months.

On portals such as Revolico, a busy classifieds website in Cuba, the informal dollar is priced at 50 pesos.

“I don’t think there are many countries in the world that have that level of overvaluation of their currencies,” says economist Pedro Monreal on Twitter.

In the midst of this painful adjustment, Monreal warns that “the informal rate continues to devalue, and pressure could be created for a new official devaluation”, in reference to the one-for-one exchange rate that benefited state-owned companies (85 % of the economy).

Dollarization

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Faced with serious liquidity problems due to the intensification of the United States embargo during the past administration of Donald Trump, the Cuban government undertook a partial dollarization of the economy at the end of 2019 in order to attract foreign currency.

On U.S. Dollars accepted here. The signe in this business in Havana was warned -in September 2020- that the CUC is not welcome. AFP

Since then, Cubans have been able to purchase in dollar markets a wide range of products that are scarce in the rest of the country’s stores. In these establishments, you can only pay with a bank card in dollars, which have funds deposited by family or friends from abroad.

The need for Cubans to go to these markets to access products, often essential, has accelerated the demand for US currency.

The dollar became scarce even before tourism, which represents the largest inflow of foreign currency to the country, declined due to the pandemic.

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