Over the years Cuba has been an exotic destination promising adventure, exposure to a different culture and incredible hospitality from friendly Cubans all at a bargain price for travelers and boaters due to the highly subsidized prices for food, liquor and accommodations. As demand for Cuba travel grew so did the prices of marinas and hotel accommodations. Cuba is still relatively economical compared to Florida or The Bahamas even though prices have risen significantly over the past 5 to 6 years.

One of the trickiest aspects of Cuba for land and sea travelers alike was the phenomenon of two official Cuban Pesos. For many years it was not simply a matter of asking “how much” it was also very important to ask in which currency because the value of the National Peso (CUP), which had a fixed exchange rate to the Convertible Peso (CUC), was worth significantly less than the value of the Convertible Peso, which was equal to the US Dollar. The confusion was amplified when the symbol used to denote both currencies was the dollar sign.

Many travelers ended up paying $10 CUC for lunch when the true price was only $10 CUP. In a murky way it was a win/ win situation because travelers thought $10 for lunch was a bargain compared to Nassau or Miami and the Cubans made a very tidy profit as $10 CUP is only worth about $0.50 USD.

The existence of two currencies was also a source of friction for the business community as maintaining two accounts was complex and inefficient. For the general population, however, the existence of the two Pesos was like a financial shock absorber because prices for necessities such as food and housing were denominated in CUP, which rarely changed in value in relation to the more valuable CUC. A loaf of bread, for example, had its price set at $8 CUP and a bottle of rum set at $35 CUP, where it remained regardless of what was happening to the value of the CUC on the international stage.

The Cuban state essentially subsidized any difference in value. The subsidies permitted Cuban households to massage low salaries into meeting the cost of living, even if the standard of living would be in the bottom third of all Caribbean nations.

For most visitors the vagaries of friction in currency markets and lower standards of living are not something to dwell on but the thought of buying a loaf of bread for $0.40 USD, fresh meat for $1 per pound and a bottle of very drinkable rum for $1.75 brings a smile to many faces. The fact that a dollar could be stretched a very long way coupled with the promise of exotic adventures drove the demand for Cuba travel.

In 2019/2020 Cuba ran into a perfect storm of economic and political pressure that created a fiscal crisis not seen since the fall of the Soviet Union. First, the American embargo was strengthened to limit the amount and means for sending of family remittances to the island. Most significantly, Western Union service was suspended, which impeded the flow of over $1 billion a year that was being sent to friends and family in the form of remittances from outside of Cuba.

Matters worsened in early 2020 when the Covid Pandemic struck, and the Cuban government closed the entire country to foreigners for over 6 months. Another $2.4 billion of foreign currency was excluded from the economy. The loss of foreign currency meant that it was increasingly difficult for the Cuban government to pay for imports, and shortages of goods became rampant because most goods, which also included more than 65% of the food supply, sold in Cuba are imported by the government.

To alleviate the problem, in July of 2020 the Cuban government opened a chain of retail outlets that dealt only in foreign currency. Purchases of food, clothing and household appliances and consumer electronics could be made with foreign credit cards or with a new medium of exchange unit dubbed MLC or Moneda Libremente Convertible, which means freely convertible foreign currency. One MLC was pegged to one US Dollar in the same way as the CUC, but the MLC only existed as a credit in a bank account, as there was no physical currency. To access MLC a Cuban needed a special bank account and credit card that was supported solely by foreign currency. Pesos could not be exchanged for MLC credit. Relatives outside of the country, however, could deposit USD and Euro directly into MLC accounts of relatives through various means.

To support the new stores, Cuba’s payment infrastructure was significantly improved, and credit card use became more widespread. Where in previous years cash was king, the broader ability to use “plastic” to pay for goods and services made traveling to Cuba simpler in that it was no longer necessary for a foreigner to carry large sums of cash. The downside, of course, is that it has also provided a convenient way to charge higher prices.

The CUC, which had been the currency carried by most foreigners, was retired from circulation on January 1, 2021. Any notes remaining could be redeemed in a Cuban bank for the equivalent in CUP at the official rate of 24:1 until December 31, 2021. The long-stated goal of the Cuban government to unify the two Cuban pesos into a single currency had been achieved but did not occur without a cost.

With the CUC removed from the picture, the subsidy on daily living expenses for the average Cuban was also removed. The result is that prices of goods have risen rapidly as already scarce supplies have been further limited by the inability to convert CUP into foreign currency to buy more. Inflation, which had been estimated to be in the 4-5% range, increased more than 10-fold overnight. The most recent figures from the Cuban government puts inflation at over 75% and anecdotal evidence suggests that the real rate is much higher.

The black market has stepped in to fill the void and while private sector imports are officially prohibited, there is a burgeoning industry of shopping mules who travel as far away as Moscow to buy as much as an airline will allow them to carry home. There are significant duties assessed against the imports but demand for scarce items remains high and the mules cannot keep up with demand. The need for cash to supply the informal import trade has driven demand for foreign currency, which is reflected in the premium that is paid by curbside money changers for USD and Euros.

Inside any marina in Cuba today it is easy to find somebody willing to pay $90 CUP for $1 USD and if one were to venture outside of the marina, rates higher than $100 pesos per dollar are possible. The trade in currency has increased to such a level that there are websites (such as www.eltoque.com) that publish the daily rates of exchange for currency on the street.

With the unofficial rates for currency as high as they are, it is possible for a visitor with ready access to foreign currency to reduce many of their expenses by a significant margin. Internet, for example, costs $1 USD/hour which is $25 CUP. If one were to buy pesos on the street the true cost of an hour of internet would only be $0.25 USD. Similarly, a $3000 CUP gourmet meal for two would be less than $50 USD, including the cost of a taxi to and from the marina. For a short period of time marina prices were effectively reduced to what they were during the Carter era where a 40-foot sailboat could be docked in Marina Hemingway for less than $275/month including utilities.

The currency situation has made Cuba a bargain destination once again if a traveler is willing to accept the risk of trading dollars on the street. It is not a risk-free proposition as there is no recourse if a transaction goes bad, so it is best to change smaller sums until a proper level of trust has been established. It is difficult to tell if the window to enjoy the lowered prices will persist. The Cuban economy has stopped shrinking and while growth will remain low for several years, the government is taking measures to eliminate some of the currency advantage by requiring foreigners to pay for more and more goods and services in foreign currency. To date rental cars and marina bills, which previously were paid in cash, can now only be paid for with MLC or foreign credit cards. The most recent development is the imposition of a 10% sales tax on purchases made in the MLC Stores.

There is always more to Cuba than meets the eye and with a rapidly changing political and economic landscape it is a bewildering exercise to unravel the nuances. Perhaps the thrill of discovering the new reality is what makes Cuba such an enchanting destination.