Cuba: Government to implement floating exchange rate

Cuba will implement a floating exchange rate for the peso which should reduce the gap between the official rate and the parallel market, Prime Minister Manuel Marrero announced on Wednesday, as inflation reached 28% over one year at the end of October.

This “new exchange regime assumes greater flexibility of the exchange rate, (and) the rate must vary when the conditions of supply and demand for currencies change,” Manuel Marrero said during a parliamentary session.

“This is a process that will take place gradually,” added Manuel Marrero, taking stock of the government plan launched a year ago to “correct distortions and revive the economy.”

Galloping inflation

Since the implementation of a monetary reform and the opening of certain sectors to private actors in 2021, the Cuban peso has suffered from a very strong depreciation, with the emergence of a parallel market which has favored inflation galloping, a phenomenon hitherto unknown to Cubans in a context of a centralized state economy.

While the official exchange rate is 120 pesos to the dollar, the latter was exchanged on Wednesday at 320 pesos at the parallel rate.

At the end of October, inflation reached 28%, said Manuel Marrero. It “has slowed down slightly” but “remains high,” he admitted. Annual inflation reached 70% in 2021, 39% in 2022 and 30% in 2023, according to official figures.

The island affected by general power cuts

Neither the Prime Minister nor the Minister of Economy and Planning, Joaquin Alonso Vazquez, provided an estimate of gross domestic product (GDP) for 2024.

In mid-November, the Minister of the Economy, however, estimated that growth would be zero or declining due to natural disasters (two hurricanes and an earthquake) and general power cuts which have affected the island in recent months. By 2023, Cuban GDP had fallen by 1.9%.

Concerning exports, “the hoped-for results have not been achieved,” the government indicated on Tuesday, cited by the official press.

The worst economic crisis in thirty years

Between 2019 and 2023, exports of goods and services fell by 31.9%, due to the fall in certain international prices as well as “low national productivity”. These declines mainly concern sugar, nickel and charcoal. For 2025, the government expects GDP growth of 1%.

Cuba is going through its worst economic crisis in thirty years. The communist island, under American embargo since 1962, is struggling to revive its economy, under the combined effects of structural weaknesses and the strengthening of American sanctions.

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