Madrid/The aggressive campaign that the regime has been carrying out for weeks against The Touch for publishing the price of currencies in the informal market on a daily basis is, inevitably, the focus this month of the report signed by Pavel Vidal for the Observatory of Currencies and Finances of Cuba (OMFi), associated with the independent media. For the Cuban economist, “the breadth and persistence of this communication and coercive offensive” go beyond “diverting attention from the multiple crises that the country is going through: productive, financial, social, migratory, energy, health and credibility.”
The “special interest that the authorities assign to the issue,” which is revealed in the “exceptional use of propaganda, institutional and police resources” – and not only in the attacks against The Touchbut also in the operations that they claim to have undertaken against informal remittance operators–, rather, Vidal ventures, it is due to another underlying objective: “paving the way for the introduction of the supposedly floating official exchange rate.”
Before that happens, the economist argues, the Government seems to have assessed that “it is necessary to first weaken (and, if possible, annihilate) the structures and some of the actors that make up the informal exchange market and the platform that publishes the main references of the price of currencies.” Part of this strategy would include, he continues, “trying to position docile alternative platforms” to the regime to regain control of the currency market.
“Why does the Government feel vulnerable to the informal currency market?”
And why, Vidal asks, does the Cuban State, which owns the banks and is all-powerful in matters of monetary and fiscal policy, use these “coercive parafinancial mechanisms” to formalize the foreign exchange market, “why does the Government feel vulnerable to the informal foreign exchange market?” Two precedents help explain it, he maintains.
One, the “monetary ordering” of 2021 (the so-called Ordering Task), when the Central Bank of Cuba (BCC) eliminated the CUC and unified the official rate at one dollar for 24 pesos. That rate, the text states, “was born outdated and did not reflect the economic and financial conditions of the moment.” Specifically, in January of that year, when The Touch It still did not offer daily information on currencies, says Vidal; in the informal market the dollar was sold for 40 pesos.
And another, the adjustment of the official rate for individuals – from 24 to 120 CUP per dollar –, carried out in August 2022, which also turned out to be a failure. “In a matter of weeks, the informal market showed that a specific exchange rate adjustment, without the support of monetary and fiscal policy, and without resolving the root causes of inflation, was not enough to regain control of the foreign exchange market,” says Vidal.
The gap between the official rate and the informal rate “widened again,” so citizens stopped selling foreign currency in the formal market “and banks ran out of dollars to sell to the public.” Faced with the unreality of the official rates and the secrecy of the regime, the economist continues, “the informal currency market has been a better indicator to measure the magnitude of the country’s inflationary process, the macroeconomic imbalances and the consequences of the failed monetary order and the deep economic crisis”, that is, the fall in the purchasing power of the people and the general impoverishment of the country.
The Government seeks to “annihilate competition, counterweights and everything that makes it possible to measure and make visible an eventual third failure.”
A “third exchange rate transformation” is approaching and, to achieve this, the Government seeks to “annihilate competition, counterweights and everything that makes it possible to measure and make visible an eventual third failure.” It is true, Vidal concedes, that the date for the implementation of this new exchange rate has not been announced, which the regime announced would be for 2025, but “the appetite for foreign currency” of the Cuban State may cause it to be implemented “despite its doubts and concerns.”
A signal that could give clues, the economist explains, is “the issuance of higher denomination Cuban peso bills, an operational issue that seems necessary to make it viable for the Exchange Houses and banks to mobilize the amount of cash that would be expected from exchange transactions over the counter.” This is a measure that, according to the Minister of Economy and Planning, Joaquín Alonso Vázquez, Vidal recalls, “is being evaluated.”
Fulfilling the promise of a new floating rate would help, Vidal explains, for banks and Exchange Houses to access foreign currency from remittances and other sources, since “a value in Cuban pesos for foreign currency that is attractive enough for households, and adjusted to real economic conditions, would generate incentives for foreign currency to enter the formal circuit.” When this happens, financial institutions “would have the dollars necessary to meet the demand of the population and sustain purchase and sale operations,” in such a way that the formal market would function “even in a context of significant restrictions on State finances.”
However, the specialist doubts that the regime will fulfill its promise, since it implies, on the one hand, that the float is genuine, that is, it adapts to the conditions of supply and demand, regardless of whether the exchange rate rises or falls, and, on the other, the commitment on the part of the State not to intervene in the exchange market for “collection purposes”, beyond the fees for providing the service. That is, the Government is willing to sell all the dollars it buys.
“It is difficult to imagine a float managed with strictly technical criteria”
Regarding the first condition, Vidal doubts that the Government really assumes an exchange rate determined by market freedom, since “economic policies have always preferred financial centralization, price caps, discretionary administration of currencies and direct instruments of monetary control.”
On the other hand, the economist continues, the Government hopes that the new rate will lead to an appreciation of the national currency, something that cannot be foreseen. “The inflationary pressures that afflict the economy have not ceased, which makes it highly unlikely that, in the short or medium term, the currency can be revalued in a sustainable manner,” says Vidal.
Added to this is something else, “crucial”: that the BCC is not autonomous and does not control international reserves. “It is difficult to imagine a float managed with strictly technical criteria,” explains the economist.
Regarding the second condition, he also questions it. More likely than settling for being an intermediary between actors is that the Government is behind remittances and that the flexible rate is taken as a means of collecting foreign currency. “The transformation of the exchange market would not be primarily to improve its efficiency and transparency, but rather an instrument to capture resources in a context in which the State’s finances are not prospering due to the decline in tourism, the structural crisis of the balance of payments and the insufficient financial support from international allies,” says Vidal, who predicts: “If the Central Bank becomes a net buyer of foreign currency in the formalized exchange market, a greater imbalance would be generated that would re-boost the depreciation of the Cuban peso. of an exchange market in which there is no surplus would make its price even more expensive. Buying dollars and not selling them would imply an additional issuance of pesos with serious inflationary effects.
This same Tuesday, for example, ‘El Artemiseño’ publishes that what ‘El Toque’ is doing is an “invasion”
Pavel Vidal dedicates the last part of his monthly report to clearly establishing all the negative aspects of having an informal exchange market – speculation, volatility, illegality, insecurity, lack of protection – but explains that if informality arose it was as a “direct response” to macroeconomic imbalances and the “absence of effective policies and reforms to face the multiple crises that affect the country. “The replacement of the informal market cannot be imposed or achieved through intimidation and misinformation,” he asserts, and adds: “Even with its imperfections, the informal market has operated as an alternative channel to avoid an even greater collapse. “It has allowed remittances to continue arriving, the private sector to operate and a better reference to calculate costs and prices than official rates.”
It seems that the Government will pay attention to none of this, as it continues its attack against The Touchwhom he accuses of crimes such as “terrorism”, “currency trafficking”, “tax fraud” or “mercenarism”. Not a single day goes by without the official media, written or audiovisual, dedicating one or two articles to attacking the independent media. This same Tuesday, for example, The Artemiseño publishes what he does The Touch is an “invasion” and that the State has the right to “defend itself against an aggression to its sovereigntywhether territorial, political, social or economic.”
Just yesterday Inter American Press Society (SIP) condemned the regime for these attacks. In a statement, the organization, based in Miami, recalled that the media’s workers have suffered “acts of intimidation, threats and direct pressure”, as well as “defamation campaigns from official media and accounts linked to state institutions”, which adds “to a systematic pattern of persecution against independent journalists in Cuba, which includes surveillance, confiscation of equipment, immigration restrictions and harassment of family members.”
