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Thursday, August 18, 2022

AP Explains: Why Cuba Lowered the Dollar Rate

HAVANA ( Associated Press) – Starting this week, the Cuban government will begin buying dollars at an exchange rate five times the official rate in an effort to capture more foreign currency and combat the informal market. The measure will also affect other currencies such as the euro.

Individuals and small businesses will be able to exchange their dollars for cash at exchange houses and banks—all state-owned—at 120 Cuban pesos per greenback, although in practice they would receive 110 pesos if charged for the exchange. Commission is deducted.

This exchange rate is above the official rate of 24 Cuban pesos per dollar that would be retained for accounting for state agencies or companies that own the dollar and are the country’s productive base.

The euro will go from 24.40 pesos to 122, with the commission for each community unit being 119 island notes.

Here’s a look at what the Cuban authorities’ decision means:

Why was this decision taken?

Although the closure of the exchange market in Cuba was never announced, the buying and selling of dollars on the island ceased until January 2021, as a financial reform eliminated the dual currency – until then, the Cuban peso. The equivalent convertible circulated with up to the peso dollar – and the arrival of fewer remittances as a result of the paralysis of tourism due to the COVID-19 pandemic and United States sanctions.

Although the state did not sell dollars or other foreign currencies to the population, people went to informal markets to buy foreign currency to load debit cards with which they would buy food, emigrate, or make purchases for resale in specialty stores on the island. to travel abroad. -especially Mexico and Panama-, for other reasons.

Until last week, the rate in that parallel market was between 110 and 120 pesos per dollar.

In addition, the government imports food, medicines and supplies that must be paid for in dollars.

For example, the government buys food abroad for about $2,000 million a year, which the state then sells to the people for pesos and at a subsidized price.

Similar to the rate offered by the informal market, the government expects Cubans to go to the windows and the state will increase its dollar reserves. However, some experts warn that it may have the opposite effect.

Free buying and selling of dollars in Cuba?

No, the announcement does not mean that a free exchange system will be implemented as for now only dollars can be sold in exchange houses and banks.

As per the measure, the official exchange rate of 24 pesos per dollar will be maintained for the state companies operating, their import and export.

According to Cuban officials, the figure of 120 Cuban Peso-110 in hand will fluctuate according to the international market after deducting the commission.

Cuban or foreign, non-farm cooperatives and small and medium-sized companies, will be able to participate in the windows and will be charged an 8% commission if the money is in cash. If the exchange is through transfer, they will get 120 pesos. However, some experts warn that it could have negative effects.

What risk do you face?

“This is a recognition of the devaluation of the Cuban peso taking place in the informal market,” said economist Pavel Vidal, a professor and researcher at the Pontificia Universidad Javeriana Cali in Colombia in an interview with the Associated Press.

From a positive perspective, Vidal indicated, remittances can now be sent through formal channels—no one wants to sell remittances at 24 pesos per dollar, when they can receive 120 in the informal market—which is the United States. Can unlock a conversation with. Banned such shipments taken by Joe Biden during the tenure of Donald Trump and more recently.

For decades, Cubans received their remittances through Western Union, but Trump banned their operations, so people sending money to their families on the island went through mules or informally to feed the parallel market. did so.

However, Vidal emphasized, it is “a big mistake” to convert the exchange market into a mechanism only for collecting foreign currency, because it injects too many pesos into the financial circuit and it is the people who The consequences will bear fruit when it comes to inflation. , inspired by that amount. circulating.

For his part, Cuban economist and professor Omar Everlyen Perez added to the Associated Press that the government is putting a floor on the dollar at 120 pesos, but will not make the informal market disappear because there will continue to be great demand for the dollar. Emigration and stocking up on goods that are not produced on the island, for which the parallel rate could rise even higher.


Andrea Rodriguez is on Twitter: www.twitter.com/ARodriguez Associated Press

World Nation News Desk
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