Two weeks ago, Maritza, a retiree from Centro Habana, took her flat screen television to be fixed by a neighbor who is dedicated to repairing electrical appliances. to the left. The young man told him that he had to change a piece and that the cost was 4,000 Cuban pesos or 20 dollars, according to the exchange rate of that day. Now, when the time to pick it up approaches, the woman, who only has the foreign currency sent by her son because her pension has not been paid in pesos, considers that the repairman should charge her less green bills, since the national currency it has been devalued and the agreed 4,000 pesos is now equivalent to 17 dollars.
The upward race of the dollar in the informal market of the Island does not give respite. Just two months ago, the Cuban peso was collapsing again with an exchange rate of 200 to 1 dollar. This Sunday it already reached 245, while one euro, the second most coveted currency in Cuba, was sold for 250 pesos. These magnitudes leave the official exchange rate, located at 120 pesos to 1 dollar since August 2022, at a stark distance, and confirm the deviation of the real economy from the official one. But they also cause dozens of headaches for the daily lives of citizens, who no longer know what to expect every time they close a deal.
Miguel’s case is different, but similar. Several weeks ago, a family hired his services as a carpenter for a figure that, then, was equivalent to 50 euros. The job consisted of delivering some shelves for the toilet, several varnished and bevelled planks intended to house cleaning products, a relatively simple task but one that, as is his custom, took him longer than normal. The client called him this weekend to ask how much longer it would take and Miguel asked if they had already collected the money. “Yes, we have the 50 euros.” The magic phrase was enough for the carpenter to use himself thoroughly and run to deliver his work, since since he offered the budget to today, the value of the European currency has increased without measure, and getting that money is vital.
In October of that year, and as a reaction to the changes, the US currency rose to 200 pesos.
“1,500 to 265. Centro Habana,” announces a user in one of the many groups for buying and selling dollars in Cuba. The price is the exception, but the seller faces criticism with cynicism. “To those who don’t like it, keep eating rope and continue in this beautiful country, jamming tremendous cable”, he blurts out. “I sell the dollars for 240 or 250 and the same resellers within a few days keep it and calmly sell it for much more. That’s why I sell them like this, that right now an egg carton at 2,200 sounded to me, “he continues annoyed.
Among the comments reigns the irony of those who compete by offering less quantity at a lower exchange rate or those who say they are waiting for the price to continue rising to 300 and even 500, because Cubans no longer know what to expect.
The devaluation of the Cuban peso, which according to economist Steve Hanke, Professor of Applied Economics at Johns Hopkins University has fallen more than 70% since January 1, 2022 –and it is the fourth currency that loses the most purchasing power in the world, only behind those of Zimbabwe, Venezuela and Syria, it began to worsen since the beginning of the Ordinance Task, in January 2021.
At the time, the authorities announced an exchange rate of 24 pesos to 1 dollar, a rate that economists described as totally unrealistic. It didn’t take long to see that they were right. On the street, it took a very short time for the dollar to be around 80 or 90 pesos and, in August 2022, the Central Bank approved a change in the rate, going to 120 pesos per dollar for individuals and the retail sector.
In October of that year, and as a reaction to the changes, the US currency rose to 200 pesos, but ended up moderating months later and returning to around 170 to 190 until, in April, the government announced that Cuban banks would accept deposits of dollars in cash again, a measure that reactivated the dollarization of the economy that, theoretically, they wanted to stop with the Ordinance Task.
Money in circulation in Cuba increased at a rate of 10% per year between 2000 and 2017, but between 2020 and 2022 it did so by 86% each year
Fiscal and monetary policy has been constantly erratic, including corrections over and over again in the last two years, and has favored inflation and the collapse of the value of the national currency. The most recent of the experiments is the so-called bankarization, with which it is intended to forcefully introduce an increase in digital operations for which the country is barely prepared.
This weekend, the Cuban economist Pavel Vidal, a professor at the Javeriana University of Cali (Colombia) and an expert at the Central Bank of Cuba, published a article in which he briefly explained how the demand for money works, an instrument that the island’s authorities are unaware of in his opinion, given the equivocal policy that is worsening the national economic crisis by leaps and bounds. In it, he offers a revealing fact: money in circulation in Cuba increased at a rate of 10% per year between 2000 and 2017, but between 2020 and 2022 it did so by 86% each year.
Galloping inflation and the depreciation of the informal exchange rate increase the need for larger volumes of money to pay for goods and services and buy foreign currency. Although real GDP and the number of transactions have fallen, prices have multiplied several times and more money is required.
“If the Central Bank wants to influence the decrease in the demand for money, it would first have to stop runaway inflation,” the expert asks. In his opinion, the solutions would be to “stop monetizing excessive fiscal deficits” or raise the price of money (interest rate).
“But no. The preferences continue to be the administrative measures, no matter how much they say and write in I don’t know how many documents the opposite,” he laments, alluding to “banking.” This plan, he adds, requires a level of trust that Cubans do not have in their system. “Not long ago (2021) families saw 80% of the value of their bank accounts evaporate as a result of the ‘monetary order’ (…) Since the 1990s the Cuban government has not been able to provide a convertible national currency and with a single exchange rate appropriate to the economic and financial reality of the country”.
Analysis like that translates very easily into the lives of Cubans, like Luis, a private taxi driver who already “only” charges 4,500 pesos to take clients “of a lifetime” from downtown Havana to the airport. “I am going to stop making these trips, because what is convenient is to only go from the airport to the city, which is paid in foreign currency.”
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