Dollars, euros, pesos and MLC: the puzzle of currencies in Cuba

What can I pay with here?” This is the question that Cubans ask themselves when they enter a storea restaurant or a gas station, on an island where four currencies and multiple exchange rates coexist.

“That is tortuous, where am I going to buy, how is the exchange rate, if it is convenient for me to change it,” Pedro González, a 68-year-old engineer who retired in 2020, but returned to work seven months later, when he saw that his pesos “they evaporated like water.”

In 2021, the government applied a monetary reform to unify the two currencies that circulated in the country: the Cuban peso and the local convertible peso, which was equivalent to the dollar.

But, three years later, the Cuban peso coexists with the dollar, the euro and the MLC (freely convertible currency), a virtual currency established in 2019 by the government equivalent to the dollar and which only has legal value in state stores in Cuba.

In addition to the multiple currencies, there are two official exchange rates in the country, one of 24 pesos per dollar for companies and another of 120 for the general public. Additionally, there is a third informal rate that exceeds 300 pesos per greenback.

For the average Cuban it is more than complicated to deal with four currencies and the exchange rate that each establishment recognizes.

“You have to be very attentive to that mechanism” of coins for “make the most of it” money, says Pedro González, who speaks almost like a financier who checks exchange rates every morning and draws up strategies.

blessed remittances

For the Cuban economist Pavel Vidal, an academic at the Javeriana University of Cali, Colombia, “There is no economy that can grow and develop in these monetary and exchange conditions.” This generates “inequalities and distorts relative prices in the markets”Add.

Cuba is experiencing its worst economic crisis in 30 years with a GDP contraction of 2% in 2023, due to the prolonged effects of the covid-19 pandemic, the intensification of the embargo imposed by Washington and the structural weaknesses of its centralized economy.

Inflation skyrocketed 70% in 2021, a 39% in 2022 and a 30% in 2023. González assures that even adding his pension and his new salary he would not be able to make ends meet, if it were not for the remittances he receives from his son, who emigrated two years ago to the United States.

He explains that when he receives US$100, he changes most of it to pesos, which allows him to buy in the private stores that the government authorized in 2021, with a better offer than the state ones that sell in MLC.

In this country of 11.1 million inhabitants, the average salary is 4,200 pesos per month (US$35).

“I don’t receive anything (neither dollars nor euros),” laments bricklayer Lázaro Ruiz, 69, a late blind man who survives in very poor conditions. Another equation is what Ana Valls, 80, who rents a room in her house in Havana, has to make. The pesos she earns are converted into MLC, a currency that according to the economist suffers “an interannual depreciation of 10.7%”.

Although to have MLC one has to deposit dollars on a card of this virtual currency, then the MLC cannot be exchanged for physical dollars. In Ana’s case, she gives her pesos to a person who makes a transfer in MLC.

“This is how we are solving,” says Valls as he leaves dragging a shopping cart loaded with food from a store in the capital where they only accept that virtual currency.

“Appetite for foreign exchange”

The demand for foreign currency has grown because Cubans who are leaving the country, in the midst of a migratory wave that broke records in 2022 and 2023, hoard dollars to be able to finance their onerous trips.

On the other hand, emerging private companies need dollars to import and they do not always get them in the official market. “The appetite for foreign currency has been very marked to the detriment of the Cuban peso”explains expert Pavel Vidal.

Given the lack of liquidity, the Central Bank implemented actions last year to stimulate electronic payments and enhance the banking system of the economy.

In December, the government advanced the next “intervention” of the informal market “and exchange rate control.” The measure is part of a plan to “reboot the economy”which included an increase in the price of fuel by more than 400% at the beginning of March.

Now the sale of fuel is in dollars for foreign tourists and Cubans who can afford that luxury. The MLC, paradoxically, is not among the currencies accepted at gas stations to obtain fuel. “The MLC no longer works, not even for the government itself,” Vidal sentence.

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