Cuba's Central Bank Introduces New Floating Dollar-Peso Exchange Rate at 410 CUP

Central Bank Implements New Exchange Rate System

Havana, Cuba – The Central Bank of Cuba (BCC) officially introduced a new floating exchange rate for the US dollar, setting it at 410 Cuban pesos (CUP) per dollar, effective December 18. This measure is designed to attract foreign currency from the informal market and to 'bring order' to the nation's economy, which has been grappling with significant distortions and a severe economic crisis.

The announcement was made by Juana Lilia Delgado Portal, President of the Central Bank, who stated that the coexistence of multiple exchange rates has fostered informality and complicated financial traceability. The new rate acknowledges the 'objective reality' of the substantial gap between official rates and the informal market's valuation of the dollar.

A Three-Tiered Exchange Market Structure

The new framework establishes a three-segment exchange market, aiming for a gradual transformation rather than immediate monetary unification.

• Segment I: Fixed Rate of 1x24 CUP per USD. This rate is reserved for centralized state allocations for essential goods and services, including fuel, medicines, electricity, public transportation, and basic food rations, to prevent drastic price increases for the public.
• Segment II: Fixed Rate of 1x120 CUP per USD. This rate applies to state and mixed entities that generate foreign currency, particularly within the tourism sector, offering competitive conditions for exporters.
• Segment III: Floating Exchange Rate. This is the newly introduced segment, applicable to individuals and non-state enterprises. It began at 410 CUP per USD and 481.42 CUP per EUR, and is intended to fluctuate daily based on market supply and demand.

Ian Pedro Carbonell, Director of Macroeconomic Policies at the BCC, indicated that the floating rate would be based on 'real transactions' to channel foreign currency flows through the financial system and provide a legal avenue for currency exchange.

Addressing the Informal Market and Public Reaction

The Central Bank's move comes as the informal market has seen the US dollar trading significantly higher, often around 440 CUP. The government's decision to set the new official floating rate close to informal values is seen by some as a formal acknowledgment of the parallel market's influence.

Public reaction to the new rate has been mixed, characterized by skepticism and confusion. Many citizens question the measure's effectiveness, particularly regarding the availability of foreign currency for purchase, which remains limited to a maximum of $100 per person through digital appointments. The government has clarified that the official market will only sell the foreign currency it manages to buy, without depleting state reserves.

Economically, the impact on average Cuban citizens remains modest. With the new official rate, the average monthly salary of 6,685.3 pesos translates to approximately $16.30 USD, a marginal increase. The minimum wage of 2,100 pesos barely reaches $5.12 USD. Many essential products continue to be priced in dollars or Freely Convertible Currency (MLC), which remains largely inaccessible to those earning in pesos.

Challenges and Future Outlook

Despite the Central Bank's stated aim to reorganize the currency market and strengthen the Cuban peso, the measure faces significant challenges. Critics argue that without greater structural reforms, trade openness, and legal security, the new system may not fundamentally alter the economic reality. The informal market is expected to continue serving as a key reference for prices, highlighting the ongoing struggle to stabilize the national currency amidst chronic foreign currency shortages and a contracting GDP.