An article published in the state newspaper Granma has generated debate regarding the possibility of changes in Cuba’s exchange rate policy.
The text, titled “Macroeconomic stabilization: what to do in exchange rate policy?” (YO)”, analyze the current situation of the exchange market in the country and proposes measures to improve its functioning and contribute to economic recovery. However, Cuban economist Pedro Monreal questions the analysis. Let’s see.
Below are some of the main elements addressed:
Official exchange market: Joel Ernesto Marill Domenech advocates in the article to expand the official exchange market and better connect it with the economic reality of the country. Currently, there are two official exchange rates (1×24 and 1×120) which, according to the author, do not reflect the current market situation.
Macroeconomic Stabilization: The importance of exchange rate policy for macroeconomic stabilization and the country’s recovery is highlighted. The article argues that proper management of the exchange market can stimulate national production, attract foreign investments and reduce inflation.
But, the analysis published in Cuba’s main official newspaper recognizes that adjusting exchange rate policy is “complex,” especially in a context of “shortage of foreign currency and macroeconomic imbalances.” In this sense, it is mentioned that any change must be carefully planned and executed to avoid negative consequences.
NEW EXCHANGE MARKET IN CUBA?
In essence, the author of the article proposes three fundamental actions to improve the functioning of the exchange market in Cuba:
- Establish an equilibrium exchange rate: the Central Bank of Cuba (BCC) should determine an exchange rate that encourages the purchase of foreign currency and regulates demand at levels compatible with supply.
- Adjust the exchange rate regularly: The exchange rate should be modified regularly based on the movements in the supply and demand of currencies in the market.
- Allow participation of informal actors: Actors currently operating in the informal foreign exchange market should be allowed to participate in the formal financial system.
For Cuban economist Pedro Monreal, these assessments might be a prelude to action by the Central Bank of Cuba.
Economist analyzes impact of exchange rate in Cuba
The economist questions whether the government is prepared to handle inflation resulting from a significant devaluation by adopting the current informal rate as the initial rate.
“The initial rate of ‘stage 1’ (non-state official exchange market) would have to be approximately the current informal rate (~320). That would represent a devaluation of 167% compared to the rate of 1:120. Would the government be ready to assume the extra inflation that this would represent? asked from social network X.
The truth is that the debate on exchange rate policy in Cuba is more alive than ever. Let us remember that at the end of 2023, the Cuban government announced plans to restructure the country’s exchange market. Likewise, the objective was established to define a new official exchange rate of the United States dollar (USD) for the year 2024, with the first proposals being heard starting in February.
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