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LATIN AMERICA ADVISOR

LATIN AMERICA ADVISOR

A daily publication Of the dialogue

August 19, 2022

What Will Cuba’s Currency-Buying Plan Accomplish?

Cuban central bank chief Marta Wilson González announced this month that the government would buy U.S. dollars and other foreign currencies at some five times the official rate. // File Photo: Juventud Rebelde.

Q

  • The president of Cuba’s central bank, Marta Wilson González, announced on Aug. 3 that the government would begin buying dollars and other convertible currencies at some five times the official rate in an effort to disrupt the informal money market. How big of a problem is the informal money market for Cuba’s economy? Why has Cuba’s government decided to take this action, and what will be its economic effects? Who will benefit from the move, and for whom will it be detrimental?

A

Pavel Vidal, professor in the Department of Economics at Pontifical Xavierian University in Cali, Colombia and former analyst in the monetary policy division at the Central Bank of Cuba: “The Central Bank of Cuba recognized the peso devaluation that had been occurring in the informal market since 2019. It defined 120 as the new official peso-dollar exchange rate, abandoning the unified official exchange rate of 24, which was one of the primary objectives of the 2021 monetary reform. The positive aspect of the announcement is that private companies and cooperatives will be able to make formal transactions at the new exchange rate. Banks will exchange physical dollars and foreign currency transfers from abroad at 120, which unblocks one of the main impediments to the arrival of remittances through formal financial channels. It is also favorable for…”

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