Cuba: the exchange rate crisis does not end

One of the currencies that depreciated the most against the US dollar was the Cuban pesos. In 2021 one devaluation with 96% and in August 2022 a new -80%. The two major devaluations that have taken place over the past period have not helped to stop the Cuban peso’s weakness. The living conditions of the Cubans have not improved.

L’inflation of the island it was 77% at the end of 2021 and 37% again in September 2022. What may not have worked was that the devaluation of the exchange rate took place without simultaneous liberalization of the domestic economy. In short, domestic production is stagnating, imports are increasing, and a weaker exchange rate is driving up consumer prices.

The scarce inflow of foreign currency with the tourist collapse of the pandemic. It kept imports low and inflated inflation through scarcity of goods and services. Prices exploded, pensions and salaries increased by up to 500%. In 2021 the budget deficit it was 11.7% and was financed by printing money. Excess liquidity has led to even higher expected inflation. Many Cubans have sold their properties to go abroad and start a new life. Cubans hope that thehyperinflation is at least partially cushioned by the reopening of tourism, but it is not enough to carry the full economic weight. There will be more exchange rate devaluations, so Cuba will have to prepare for anything and everything!