Why Do the Dollar and Euro Prices Fluctuate Dramatically in Cuba? Insights from elTOQUE

Since 2022, Cuba's informal currency market has been on a rollercoaster ride, with dramatic peaks followed by apparent corrections. However, after each adjustment, the starting point shifts; the dollar and the euro never return to previous levels. What drives this trend?

The independent media outlet elTOQUE has analyzed this phenomenon, labeling it as "overshooting," a term that describes an exaggerated exchange rate reaction.

Understanding Overshooting

The concept of overshooting was introduced by economist Rudi Dornbusch in 1976. According to his theory, when an economy experiences a sudden change—such as a new monetary policy, devaluation, or a crisis of confidence—economic agents tend to overreact. In the short term, foreign currency values rise far beyond what actual economic fundamentals would justify. Eventually, the market adjusts, though never to the original point, establishing a new, higher equilibrium.

As elTOQUE explains, this pattern has become evident at several key moments in Cuba's informal market.

Major Currency Swings

First Major Surge: August - October 2022

The introduction of a new currency purchase scheme at 120 CUP per dollar sparked the first significant upheaval. Within weeks, the dollar and euro soared to 200 CUP, driven by deep uncertainty and a lack of real supply. Once "expectations cooled," a correction brought rates down to 165 CUP. elTOQUE identifies this as the first clear overshooting, a "speculative peak followed by partial correction."

Second Episode: July–September 2023

A year later, the phenomenon reoccurred. Rumors about exchange rate adjustments and new controls fueled another abrupt rise, this time ranging from 215 to 225 CUP. Then came what elTOQUE calls a "reality check": values fell to 190-200 CUP. Again, it was a correction without returning to previous levels.

Third Peak: May - June 2024

The situation became even more volatile as the dollar surged to nearly 400 CUP, driven by the "herd effect": buying because everyone else was. This time, a new factor emerged: organized interference by the Cuban government. More than 2,000 social media accounts started posting against the representative rate calculated by elTOQUE, even promoting fake offers to manipulate the algorithm. This caused a temporary drop below 300 CUP, but it was merely "noise."

2025: From Peaks to Trends

Unlike previous years, 2025 has not seen a rapid peak followed by a swift drop. Instead, there has been a steady increase in foreign currency rates, reaching historic levels like 490 CUP per dollar. According to the Observatory of Currencies and Finance (OMFi), speculative factors have compounded the structural demand for foreign currency since September:

"To the commercial demand for foreign exchange, speculative purchases have been added."

This phenomenon prompted an abrupt correction: the dollar dropped from 490 to 420 CUP this Wednesday. But is this another overshooting, or are other factors at play?

Disinformation and Digital Manipulation

elTOQUE highlights two critical factors:

• The impact of Hurricane Melissa, which may have temporarily slowed economic activity.
• A new disinformation campaign launched on October 22 by the Communist Party to discredit the Informal Market Representative Rate (TRMI).

Messages like "The dollar collapses, thanks to the people!" or "elTOQUE can no longer manipulate" flooded Facebook and WhatsApp groups. The media outlet argues that hundreds of recently created fake profiles with AI-generated photos shared the phrase "No to TOQUE."

elTOQUE summarizes: "It was an organized action. The intention is to generate the sensation of massive rejection and, above all, to question the legitimacy of the TRMI."

Can a Disinformation Campaign Lower the Dollar Price?

Yes, but only temporarily. The analysis is clear: "Such campaigns do not change market fundamentals: they do not create currency, reduce inflation, or restore confidence." By creating confusion, some people decide not to buy, others sell out of fear, causing a temporary dip. However, elTOQUE clarifies that the market readjusts because, as long as the scarcity of dollars, inflation, and lack of trust persist, upward pressure remains present.

elTOQUE warns: "The official narrative attempts to capitalize on a technical breather to support its thesis, but the real fundamentals... remain intact."

What Does This Reveal About Cuba’s Economy?

Ultimately, the fluctuations in Cuba's informal currency market are not mere accidents. They reflect a fragile economy, lacking anchoring policies and structural solutions. Using overshooting as an analytical lens helps to understand why, even though the dollar "drops" after each peak, it never returns to where it was. Each rise is driven by expectations, rumors, distrust, and necessity. Each fall is merely temporary, an illusion, a partial adjustment. elTOQUE sums it up perfectly:

"The volatility of Cuba's informal currency market reflects an economy without anchors and without solutions to the multiple crises that drag it down."

The independent Cuban media outlet concludes that informal dollar and euro rates act as thermometers of an economy in crisis and that disinformation campaigns can momentarily alter perception but do not change the underlying reality. The TRMI, far from being the problem, is one of the few honest mirrors reflecting the true value of the Cuban peso.