This past Wednesday, the Central Bank of Cuba (BCC) made a grand announcement about the nation "beginning a transformation of the currency exchange market."
They pitched it as the dawn of a new era: stability, transparency, and monetary equilibrium. However, upon closer inspection, the details reveal a different story: the regime has introduced three different exchange rates that solve nothing and, as always, end up benefiting those in power rather than the people.
In simpler terms, they’ve tangled the financial system with fancy words.
The Importance of Exchange Rates
What exactly is an exchange rate, and why does it matter? Essentially, it is the price of the dollar (or the euro) measured in Cuban pesos.
If you’re told one dollar is worth 440 pesos, it means you need 440 CUP to buy one. And if the government claims it's 24, well, we wish that were true.
The issue in Cuba is that multiple prices exist for the same dollar, defying economic logic. While you're on the street or on Telegram exchanging at 440, the State enjoys the luxury of buying dollars at 24 pesos and claims that everything is "under control."
A New System: Three Rates, Three Realities
With the Central Bank's announcement, Cuba now has three official exchange rates:
The 1x24 rate remains for government operations: electricity, oil, basic food basket, transportation, everything the State deems "strategic". This is the dollar for ministries, state companies, and especially GAESA, the military conglomerate controlling tourism, MLC stores, airports, and even banks.
The 1x120 rate is for state or mixed enterprises that generate foreign currency, such as exporters or tourism businesses. This supposedly aims to "stimulate competitiveness". In practice, it’s a way to give them a bit more breathing room without relinquishing control.
The new "floating" rate, which the Central Bank claims will be updated daily based on "supply and demand", applies to individuals, the private sector, and any Cuban wishing to buy or sell foreign currency at CADECA or the bank. It sounds like a free market, but it’s a different story.
The Illusion of a "Floating" Market
The Central Bank wants you to believe that this new exchange rate will move freely like in other countries, based on how many dollars enter or leave the market. But the problem is, in Cuba, there is no free market because everything is mediated by the State. The government decides:
- How many dollars to sell;
- To whom they sell them;
- At what price;
- And when to put them into circulation.
This isn’t a floating rate; it's a tethered one. Or as any Cuban might say: a rope they loosen or tighten at their convenience.
Economist Mauricio de Miranda Parrondo explained it bluntly: "The minister of the Central Bank intends to dictate to the market at what rate it should operate. That’s not how the economy works."
And he’s right. In a real market—like in Mexico, Colombia, or the Dominican Republic—banks buy and sell currencies freely, and the Central Bank merely publishes an average rate at the end of the day.
In Cuba, it's the opposite: first, the Central Bank states the rate, and then forces the market to adapt.
GAESA Wins, the People Lose
Behind all this complexity, there is a clear winner: GAESA, the military consortium that handles the country’s major finances.
With the 1x24 rate, the group's businesses can purchase dollars at a bargain, import cheap products, and then sell them in MLC stores as though the dollar were worth 440 pesos. It’s a lucrative venture.
De Miranda exposed the reality: “They want to give special conditions to certain segments (including GAESA) to operate with a 1x24 rate that is unsustainable for the country.”
Think of it this way: You work in a private business and need dollars to import flour, parts, or oil. You go to the bank and are told that the dollar costs whatever the government wants that day, or there’s no availability.
Meanwhile, GAESA buys them at 24 pesos and sells the same products in hard currency. This isn’t an economic policy; it’s a system of privileges.
Three Rates, One Truth
Let's illustrate with concrete examples:
The State: buys dollars at 24 pesos. With 24 CUP, it gets a dollar. In reality, the dollar is worth 440. It’s like going to the market with 10 pesos and getting a quintal of rice. Pure fantasy.
Intermediate state enterprises: exchange at 120. They breathe a bit easier but remain dependent on permits, ministries, and paperwork.
The common citizen: if lucky, might exchange 100 dollars at the “floating” rate. But that value is set by the Central Bank, and there’s almost never currency available. In short: people will continue trading dollars on the street, where they are worth much more.
Three rates, three worlds, and one outcome: Inequality.
The Economic Deception
The regime claims these measures will prevent sharp devaluations and protect the people.
The truth is, the population has no access to any of these advantages. The entire system is designed to keep the state and military apparatus alive, not to stabilize the currency.
De Miranda summarized it best: “It’s an unacceptable self-deception to believe that because the government decides the dollar is worth 24 pesos, the market will accept it.”
This is the essence of Cuban economic policy for decades: the State invents a number and expects reality to conform.
What Lies Ahead?
Nothing we don’t already know:
- The Cuban peso will continue to lose value.
- The informal market will continue to set the pace.
- Prices will keep rising.
- And the government will keep talking about "monetary ordering" as the country sinks into disorder.
The new exchange scheme isn’t a solution; it’s a patch with a military uniform. Not a step towards stability, but another turn of the screw to control every dollar entering the country.
In Summary
The "currency transformation" transforms nothing. It only further divides the country:
- Between those who have access to dollars and those who don’t.
- Between those who rule and those who survive.
- Between the official discourse and the reality of the pocketbook.
Three rates, three lies, one truth: in Cuba, money still holds less value than obedience.
Understanding Cuba's Currency Exchange System
Why does Cuba have multiple exchange rates?
Cuba implements multiple exchange rates to serve different sectors. The 1x24 rate is for government and strategic operations, the 1x120 rate assists state or mixed enterprises, and the "floating" rate applies to individuals and private sectors, though it is controlled by the government.
How does GAESA benefit from the currency exchange policy?
GAESA benefits by purchasing dollars at the lower 1x24 rate, allowing them to import goods cheaply and sell them at much higher prices in MLC stores, effectively capitalizing on the disparity between official and street exchange rates.
What impact does the currency exchange policy have on Cuban citizens?
The policy creates inequality, as ordinary citizens often cannot access dollars at the official rates. They typically deal with higher street rates, making it difficult to afford necessary imports and exacerbating economic challenges.