Foreign currency prices – as well as the Cuban magnetic card currency (MLC) – have shot up on Cuba’s illicit market in recent weeks.

According to the rates tracked by El Toque on a daily basis (which are calculated by taking the average of figures found on buying and selling ads of foreign currency), the USD went up from an exchange rate of 72 pesos on January 1, 2022, to 100 pesos today.

In June 2021, the annoucement of a “temporary suspension” of cash deposits in USD at Cuban banks made the 50 peso value stay below other currencies such as the euro and the MLC.

Ever since then, “transactions began to appear involving USD deposits for MLC cards and these began to show a higher value than cash, which is explained by the fact they can be used to purchase goods that are only sold at stores created for this purpose,” economist Mauricio de Miranda explained. “The need to buy goods led to a preference expressed in USD deposits for the MLC cards and not in cash.”

In October 2021, Cuban economist Pavel Vidal identified some events that impacted supply and demand of foreign currency on the street:

 “The pandemic, a drop in tourism, economic recession and flights being canceled, can all be identified as the key factors that continue to keep the number of dollars and foreign currency entering the market low. Meanwhile, public sector wages and pensions have gone up, as has inflation, institutionalized dollarization, and pesos cannot be exchanged for foreign currencies legally at bureaus de change and banks.

“Meanwhile, uncertainty surrounds currency policy, all leading to an increased demand for foreign currency: whether this is because more foreign currency is needed on the illicit market to make a transfer or because people are just seeking security in more stable currencies at times of currency crisis,” noted Vidal.

A drastic spike in USD value in recent days has not only meant that it has exceeded the MLC, but that it now stands closer to the euro – its value stands at 0.07 cents less than the international rate – for the first time ever and, even more interesting yet, it could be a sign of other things getting worse.

Dollars for leaving Cuba

While exact figures of the number of Cubans who have traveled to Nicaragua ever since visas no longer became a requirement, hasn’t been made publicly available, the huge demand recorded by airlines and popular perception show that the figure isn’t only high, but will remain so for some time.

“They go down the drain,” Alejandro, a young self-employed worker living in Santa Clara, says about dollars and people. “There are many people who have made or about to make the journey to the US’ southern border, and they are taking advantage of the visa exemption in Nicaragua to do so.” Statistics from the Customs and Border Protection Department (CBP) cited by Cibercuba reveal that during the first three months of this fiscal year, 20,476 Cubans entered the US via Mexico or other illegal routes, with a record number in December.

“In recent months, figures on Cuban migrants have begun to challenge those in the 2021 fiscal year, which ended on September 30th, when 39,303 Cubans made their way to the US via land, 38,674 of whom by crossing the Mexican border,” the statement adds.

Expensive airline tickets from Havana to Managua (over US $1,200 for a required round trip ticket depending on stop-overs and duration time) and payment for traffickers (several thousand USD), as well as food, living and transport costs in every country they need to cross, make the entire journey round up to over 10,000 USD, even. Migrants also tend to look for some money so they don’t arrive at their destination empty-handed. Alejandro calls it “the VIP journey”. “The few dollars available “fly” as they are essential for those who are leaving.

Tais agrees. She is preparing for her trip to Nicaragua and has bought almost 3000 USD, in 100 and 50 dollar bills. Her brother in the US bought her the plane ticket for February. Despite embarking on this journey with some friends, she says she’s scared to travel with so much cash in unsafe conditions.

“When we decided to leave, I started buying all of the USD I could,” she says. “I’ve had to buy them for 80 to 100 pesos. The dollar’s value went up in the Telegram groups where people sell them, in just a few days.”

Many people attribute the recent spike in USD value in the past few weeks to a possible exodus of Cubans. Even though the Havana-Managua route hogs most flights, there isn’t just one destination for people who decide to emigrate. Where they travel through depends on people’s financial means and the amount they are able to collect, which is never under $3,000.

“It’s madness,” a 40-year-old woman from Cienfuegos says, who prefered to remain anonymous and is leaving Cuba for good thanks to a plane ticket to Nicaragua, which she paid $2,500 for.

She had been “lucky” to buy USD for 95 CUP each, because “some kind spirits or people in a hurry sold them a little cheaper,” she explains.

The value of USD going up on the illicit market is also a result of shortages at stores – in pesos or MLC -, which, given the lack of competition, means that anyone with something to sell can set their own price.

“We’re desperate. It’s sad because you know that leaving is your only choice. Sometimes, you take the risk, even without having all the money you need,” she admits. “I never dreamed of paying so much for one ticket, although I’ve seen even more absurd prices; but there’s no other choice. When you’re drowing, you try to take a breath, under any circumstance.”

Crisis statistics verify her words. At the National Assembly of People’s Power in December 2021, Alejandro Gil, minister of Economy and Planning, explained that “the blow to our incomes” in the past 18 months exceeds 3 billion USD.

Gil admitted that there are over 500 state-led companies that registered a loss in 2021 and admitted the existence of a partial dollarization of the economy in intercompany relationships and the private sector. He presented an inflation figure on retail prices by 70%; especially of food, transport and building materials, due to “digressions in the design of the Reforms Process.”

Nevertheless, many economists disagree about the official inflation figure.

“Today, ONEI reported that inflation in Cuba stood at 77.33% in 2021, a figure that tends to undervalue inflation because the calculation takes consumer structures that are over 10 years old into account. The Economist Intelligence Unit has estimated inflation at 740%,” Pedro Monreal wrote on his Twitter account.

His colleague Mauricio de Miranda replied that “we’ll have to see if [the ONEI] have considered the effect devaluation on the illicit market is having on Cubans’ pockets, who can only access MLC stores by buying foreign currency on the illicit market.

Dollars for buying goods abroad

Daniel travels to Russia every two or three months. He makes a living by buying goods there so he can then resell them in Cuba. Given chronic shortages on the island, he came to the conclusion that any product he could bring back from Moscow would have a winning chance of selling quite easily on the illicit market.

“I buy all of the euros, US or Canadian dollars I can and then I change them into rubles when I get there,” he says. “I can’t go to Moscow with Cuban pesos, obviously, and if the CADECA (Cuban bureau de change) won’t change them for me, I have to “hunt” for the lowest exchange rates I can find on social media.”

Before, Daniel used to choose the bills he bought; but now, given a lack of supply and tremendous demand, he takes any bill he can get that isn’t ripped or stained, it doesn’t matter if they’re old or wrinkled up.

He takes some precautions and doesn’t buy them from just anyone. “I almost always buy them from somebody who comes from abroad, or people who look decent to me. There are a lot of scams out there.”

Ailen and Marlen, two sisters from Cienfuegos with a five-year entry visa for Panama, are also searching for foreign currency for their trips and purchases.

“We’re not leaving the country right now, but we have quite a bit of money saved,” Ailen says. “We’re afraid it’ll get a lot more expensive and then it’ll be harder for us to get.”

Amidst a landscape of foreign currencies shooting up in value on the street, Marlen took out some money from her peso account that came from selling a house, and “invests” it in foreign currency. “Then, when I leave and come back to Cuba with merchandise, I’ll sell it and make a profit from the markup,” she says.

According to an EFE news agency feature, some 34,500 Cubans entered the Colon Free Trade Zone in Panama between January and September 2019, and they spend over 100 million USD per year in their purchases.

However, Cubans are not only buying in Panama. Statistics from the Havana Consulting Group estimate that over 48,000 Cubans went abroad in 2017 to buy merchandise. It’s estimated that the “total amount of purchases by Cuban entrepreneurs that same year amounted to over a billion USD, 61.5% of which (620 million USD) were spent in the US, followed by Panama (14.9%), Mexico (8.4%), the Dominican Republic (4.9%) and Guyana (4.5%).”

Dollars for reselling

A young engineer, who prefered to remain anonymous, says that out of all of the cities where he normally buys foreign currency in the center of the country, Santa Clara is the most expensive. “The dollar sells for 100 and 105 pesos; while it hasn’t passed 90-something yet in Cienfuegos, and I’ve seen it for 80 in Matanzas.”

“If 60 pesos for 1USD seemed expensive to us a while ago, it really was a mistake not to buy them at that price. We’d be millionaires!” he jokes.

He says it as a joke, but others have made this into a business. Seeing how the USD was going up in value, they collected huge amounts waiting for it to go over the 100 peso barrier.

Claudio, a Las Tunas resident who makes a living “hustling”, has a “piece of land” saved up for when the USD reaches its highest exchange rate.

“I bought them for 80 pesos in early January from a friend who came from Texas. I thought about selling them when the exchange rate hit 103 pesos per dollar, but something tells me that it’s going to keep going up in value,” this 32-year-old health technician suspects.

“I don’t have any plans to travel, so I’m going to wait for them to go up so I can sell them and then, when they go down, I’ll have enough money to buy more than I did initially. It’s a good deal,” he concludes.

Regulating the market

Many people wonder if the USD will reach 150 pesos, like it did back in the nineties.

Oscar Fernandez, an economist and professor at Havana University, explains that the difference between the official 24:1 exchange rate and the illicit market exchange rate (which is quadruple that today), and the State’s inability to ensure foreign currency is sold at banks, has been one of the causes of the national currency’s devaluation.

Fernandez explained that the inflation process Cuba is experiencing right now, was inevitably going to happen because it’s a global phenomenon triggered by the pandemic and the national situation is worse because of US sanctions. 

Nevertheless, he points out that the “Reforms Process sparked a reset in the economy: financial variables intervened at a very delicate time. These high inflation rates that are hitting the country hard are linked to fluctuations on the informal exchange market, as prices handled by the State are not dynamically growing.”

To prove his point, the professor mentioned the fact that fuel prices have remained intact, but taxi drivers have raised their fares, even so.

“Private drivers’ living costs have gone up, because everything being sold in MLC stores is following chaotic standards; it’s not following a model standard, as there is a crack in benchmarks of money’s purposes. As a result, currency chaos ensues because of value loss,” he added.

Talking about possible solutions, Fernandez pointed out that it’s urgent the State finds a way to intervene and manage the informal foreign currency exchange market, just like it did in the nineties when the exchange rate went up to 150 CUP : 1 USD, and they were able to bring it down to 20 : 1.

“They were able to regulate it with market-based instruments and an economic policy,” the professor stressed. “If the dollar on the informal market remains a reference, street prices will never go down and wages will never be enough.”

This article was translated into English from the original in Spanish.