Currency Challenges in Cuba
HAVANA – On Monday, the Cuban peso was trading informally at around $400, reflecting the increasing trend of partial dollarization in the economy. This shift is happening amidst rising social tensions due to a lack of basic goods and deteriorating infrastructure and public services.
Governments that rely on imports are criticizing U.S. sanctions that target foreign exchange revenues, which have contributed to an 11% drop in the economy since 2019. There’s also frustration over the slow pace of economic reforms.
Prime Minister Manuel Marrero mentioned in December that the partial dollarization would be vital to better utilize the greenbacks circulating in the country as part of efforts to stabilize the economy. This concept involves using U.S. dollars to replace the local peso for certain products and services.
According to the Miami-based tracker El Talk, the peso has depreciated nearly 25% this year. Most residents in this communist-run country use it to gauge the real value of their currency. Back on January 1, the dollar was trading at 305 pesos, the same rate recorded when the tracker launched in 2021.
The current weakening of the peso is linked to government actions, which have opened many retail stores that only accept convertible currencies, foreign credit cards, or state-issued dollar cards. This has contributed to a shift in payment methods in sectors like tourism, wholesale, and tariff payments.
Officials acknowledge that dollarization and inflation are exacerbating inequality in a country where about 40% of the population cannot access foreign currency through remittances or other means. This segment typically doesn’t earn enough from state jobs or pensions to meet their basic needs.
“To address this (economic) situation, we have had to embrace partial dollarization,” President Miguel Diaz Canel told Parliament last month. He noted that while this might benefit some who have capital or receive remittances, it unfortunately widens social inequalities.
The government maintains a fixed exchange rate of 24 pesos to the dollar and a “discretionary” rate of 120 pesos, the latter increasingly utilized for transactions with tourists and for subsidizing prices on services like public transport and gasoline.
Meanwhile, the expanding private sector is not allowed to access official foreign exchange sources and will largely rely on pricing based on informal rates for imported goods.
“Now, almost everything is in dollars. Cuban money isn’t even enough to buy food, and I don’t have a dollar,” expressed Freddie Portillo, a retiree who makes a 1,500 peso pension, while walking through Havana’s main shopping area.
