There Was No Show on the First Day of Cuba’s New Exchange Rate Initiative

A line outside a currency exchange (Cadeca) in 2016, amid rumors of a reduction in the value of the Cuban convertible peso (CUC), which no longer exists. (14ymedio)

14ymedio bigger14ymedio, Elias Amor Bravo, Economist, 6 August 2022 — The regime’s state press was surprised to see that the first day of the new measure of foreign exchange buying by the State “passed calmly and as planned.” What did they think was going to happen? Perhaps they had imagined one of those shows that the communists like so much, with hordes of desperate citizens trying to sell their dollars or euros for whatever they could, or that at some point, even, a conflict would take place between the state entities that offer the exchange because they weren’t prepared. Anything in order to change the focus. It shouldn’t be forgotten that this exchange initiative comes at a time when Cuba is in total crisis. So no. There was no show. The measure, according to the minister who keeps pounding it in, is nothing more than “an important step in the purpose of establishing an exchange market to buy and sell foreign currency legally” to foreign visitors, the population and non-state economic actors. It was just one more day in which everything was absolutely normal on the city streets.

So the Cuban communists were left without the show and the first steps of the communist state as a buyer of foreign currency, including the US dollar in cash, of course with an exchange rate higher than that offered in the informal market, which had no reaction and, as expected, remained calm, operating efficiently as always and providing services to those who requested them.

The show was left for another occasion. Basically, because no matter how hard the authorities insist on dressing up a simple measure of authorizing currency exchanges as something relevant, it isn’t, and, best of all, this service has already been provided on a regular basis for a year and a half by people who have taken over the role of the financial system, at a time when it completely abandoned its function.

The directors of Economic Policies and Institutional Information and Communication of the Central Bank of Cuba (BCC) can say whatever they want and waste time with communication campaigns in the state press to try to convince people that Economy and Planning Minister Alejandro Gil’s measure “is an important step in the purpose of establishing an exchange market to buy and sell foreign currency legally to foreign visitors, the population and non-state economic actors.” It’s a waste of time, because Cubans who need foreign exchange know where and how to get it without having to resort to the state.

So this first day of the process of exchanging currencies to the new rate with the 1×120 dollar has been normal, and it has passed without pain or glory, with the population going to carry out their currency exchange operations for cash in CUP, cash deposits on magnetic cards in CUP and cash withdrawals in CUP from foreign exchange accounts, as well as transfers from foreign currency accounts to accounts in CUP, all without large crowds or stridency despite the fact that all operations had to be carried out at windows. Everything is very quiet, and yes, by paying commissions in the form of a commercial margin that, in the informal market, many recalled, are not usually charged or are not so high.

The official press referred to the fact that the cash in Cuban pesos available in bank branches and exchange offices to meet exchanges was barely used, despite the fact that the regime had made strenuous efforts to guarantee the conditions and availability of cash in Cuban pesos in response to the advertised foreign exchange purchase service. Which, if you think carefully, is another miscalculation, because what Cubans are looking for are dollars and not Cuban pesos, which happens to be the weak currency, so that those who have dollars keep them, except in exceptional cases, waiting for their value to rise, which it will. The banks and chains were really empty this first day and will continue to be so until the sale is announced, and then we will see.

The exchange rate of 1×120 didn’t attract dollar owners. Perhaps because it isn’t the rate they deem appropriate (it stays at 110 with the commissions), or because the information from the informal market and social networks tells them that in the not-too- distant future they can achieve rates of 140 and 160. Some ads in the independent digital press already establish this rate for exchanges on credit.

The peso comes out very strong with this rate of 120, and once again, the regime will deny the obvious to Cubans, as in the Ordering Task* when it launched the 1×24 rate. It’s a shame, no matter where you look, that the regime is cornered in its exchange rate policy by a free and efficient market of supply and demand, which Cubans use satisfactorily and which is expected to continue to function, despite the veiled warnings of Minister Gil.

With no show to present to the state media, and with Cubans reserving the dollars for when the peso drops lower, the initiative of Minister Gil, who has given so much to talk about, starts off on the wrong foot, and we know what that means for the communists. They are like children who protest and make a lot of noise until they have the toy they crave, but once they get it, they forget about it and leave it in a corner of the attic. The same thing can happen here, and it would be for the best. Let them forget about the state exchange market, and let economic freedom and the informal market work. Cubans and everyone else would appreciate it.

*Translator’s note: The “Ordering Task” [tarea ordenamiento] is a collection of measures that include eliminating the Cuban Convertible Peso (CUC), thus leaving the Cuban peso (CUP) as the only national currency, raising prices, raising salaries (but not as much as prices), opening stores that take payment only in hard currency, which must be in the form of specially issued pre-paid debit cards, and a broad range of other measures targeted to different elements of the Cuban economy.

Translated by Regina Anavy


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