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    New official currency exchange rates announced in Cuba

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    Anuncian nuevos tipos de cambio oficial de divisas en Cuba

    Since last July 21, the operation of the foreign exchange market is , an unknown shared by many and that was cleared up this Wednesday at the Round Table with the announcements of the Minister of Economy Alejandro Gil Fernández.

    “It is a missing piece in the functioning mechanism of the economy. Not because of a design problem, but because of the conditions in which the economy has had to develop in recent years, which have made it impossible to establish a currency trading mechanism with sustainability for the population and visitors," the minister said.

    In addition, as a "piece" it has no minor importance, almost subordinated to the inflow of foreign currency, decisive for an economy like Cuba's, which imports a large part of its food, to mention inputs that a country cannot live without.

    The measures regarding the foreign exchange market are also derived from the circulation of foreign currency in the informal market, which does not reach the national financial system and, therefore, cannot be used for the economic recovery of the country. The informal market exchange rate encourages them to continue circulating in the same way.

    How is the proper functioning of the foreign exchange market planned? Alejandro Gil points out that he cannot operate with the initial rate of 1x24, because the country does not have the amount of currency to support it.

    Consequently, exchange rates were established for foreign currencies: euro, Canadian dollar, pound sterling, Mexican peso and Swiss franc, in addition to the US dollar, which fluctuate between 5.79 CUP and 146.09 CUP.

    "It has to work on the basis that you buy a certain level of foreign currency coming into the country, and then you sell a certain level because there is a demand." For the State, the sale and purchase of foreign currency must have a positive result in the availability of foreign currency, that is, that the purchase is higher and the surplus over what is sold can be used based on the purchase of inputs and the supply within the country.

    Thus, an attempt is made to reverse the devaluation of the Cuban peso, as a distant goal, according to the minister. “If all the transactions in the economy were in Cuban pesos, and all the currencies that entered the country were exchanged for CUP to consume in that currency, the foreign currency obtained would be used to invest in the production of goods and services for sale in CUP. Moreover, for those sales, the cash that is injected into circulation for having bought a currency is collected.

    Obviously, that is not the current moment. "The starting point is that we have had the need to introduce foreign currency sales and there is a demand for foreign currency purchases," added the minister. The internal consumption in foreign currency, and the demand for it for emigration converge today in Cuba, and it is for the "relief" of the first thing that the exchange rate influences, he assured.

    “If there is much more demand to buy than capacity or incentive to sell, the exchange rate is more expensive. As long as the exchange rate is higher, there is more incentive for people to sell, but less to buy”. The market must then find a balance.