Since the impact of the pandemic on the Cuban economy, the failure of monetary regulation in 2021 and the widening of the deficit in the State budget, the informal exchange market has been growing and has become a vital channel for remittances, tourism , the import of goods and inputs and the operation of small and medium-sized businesses.
The informal exchange rate coexists with two widely overvalued official exchange rates. From January 2021 to April 2024, the Cuban peso has depreciated 660% against the US dollar in the parallel market.
The main reference (although it is not the only one) of the value of the Cuban peso in the informal market comes from the independent multimedia platform the touch . the touch has been extracting and processing information on Cuba’s parallel currency market using a novel methodology. Data is obtained from social networks and websites through artificial intelligence algorithms that enable natural language processing (NLP). Algorithms identify and extract information about who buys, who sells, what currency, at what rate and what amount.
The publication of the representative exchange rate of the informal market (TRMI) since the touch has generated a heated debate in which detractors and defenders confront each other using all types of arguments and in which, at times, frustrations and fatigue with inflation and the economic crisis, extreme political positions, limited financial education and various theories stand out. of the conspiracy.
The intolerance of the Cuban Government towards an information medium critical of official policies constitutes a motivating factor for disinformation campaigns that occur in the state press and on social networks. Blaming an external entity for the devaluation of the peso and inflation fits well within the script that the Government has used for decades to evade responsibilities and divert attention.
Several of the Cuban economists inside and out of the island have found coherence between the trajectory of the TRMI and the inflationary process that the country is experiencing, the monetization of the fiscal deficit, the stagnation of exports and national production and the absence of a macroeconomic stabilization program to address the imbalances .
The sustained increase in the number of users who use the TRMI of the touch for your operations should be sufficient proof that the methodology has managed to capture the market trend.
For an outside observer, the discussions that have been generated around the publication of the TRMI in Cuba may seem strange. It is common and useful in any market to publish indices that summarize price trends. It is especially important in financial markets to mitigate the problem of «asymmetric information» (one party in a transaction has more or better information than the other), which leads to making erroneous decisions, affecting the market balance and generating inefficiencies.
If it is an informal market that by its nature is not very transparent and in which there is more opportunity for deception, financial information takes on additional value.
Internationally, it is common to demand transparency from entities that participate in markets and provide financial information. However, an entity is rarely accused of controlling the market because it publishes price or financial indices. In the Cuban context it would be equivalent to blaming the National Office of Statistics and Information (ONEI) for inflation because it publishes the Consumer Price Index every month.
Six things the data says
Along with the fabricated and manipulated criticisms, there are also legitimate doubts that have their origin in the unusual elements of the methodology of the touch. It also raises concern that an independent media outlet is in charge of publishing information about the exchange market.
Two hypotheses are proposed. The first highlights that the methodology of the touch It is manipulable and is not trustworthy because it is based on unverified transactions (they are intentions to buy and sell). The second assures that the touch can influence the future path of the exchange rate.
As part of the work of Currency and Finance Observatory (OMFi) an investigation was carried out on the historical data collected by the touch to test the hypotheses. The results were consolidated in an article that is subjected to peer review processes in indexed academic journals. In addition to explaining the details of the artificial intelligence methodology, statistical and econometric tools were used to evaluate the TRMI trajectory. A version of the working document can be found on the website of the Social Science Research Network (SSRN).
Six arguments/results presented in the paper are summarized below.
- The methodology of the touch is inserted within the growing international use of NLP in the Social Sciences, the marketing, finance, political trend analysis, Health and many other industries that use data from social networks, the Internet and digitalized markets. The process is automated using artificial intelligence algorithms and does not involve human intervention.
- Although the calculations are made on purchase and sale intentions, the large number of observations made every day in real time allows us to capture the essence of the market (central tendency) and minimizes the possibility that a few actors can influence the market. result.
- The methodology contains several security filters to prevent manipulations by real or fictitious users who try to deliberately conspire to influence the exchange rate in a predetermined direction. Namely: 1) outliers are removed from the database; 2) the median is used to calculate the rate and not the average, which makes it less sensitive to extreme values; 3) recurring users (around 120) have been identified within the market on which an alternative exchange rate is calculated. Analysis of historical data shows that there are no irregularities or notable differences between the metrics. Regardless of the metric used, similar conclusions would have been drawn regarding the appreciation and depreciation of the Cuban peso.
- An analysis was carried out on the distribution and statistical parameters of the daily variation of the TRMI of the dollar, the euro and the MLC before and after May 15, 2022. The date marks a moment from which a significant increase occurred in website visits rate the touch. Statistical tests do not show significant changes in the patterns of the informal market once the consumption of financial information through the independent medium increases.
- Estimates from econometric models (VAR models) reveal that the number of visits to the exchange rate on the website of the touch It does not produce a statistically significant effect on future variations in the value of the Cuban peso in the informal market. The result is repeated for the three currencies analyzed. Interestingly, we do see that more fluctuations in the exchange rate precede the increase in site visits. the touch. Therefore, the direction of causality (called “Granger causality”) demonstrates a unidirectional relationship from changes in the rate of change to website visits and not the other way around. The result provides information that does not support the hypothesis of the influence of the publication on the evolution of the exchange rate. More consumption of financial information in relation to the rate it calculates the touch it does not temporally precede (do not affect) future currency price movements.
- Using NLP techniques, the touch It has also collected data on the advertised quantities of coins intended for purchase and sale. The aggregated daily values of users’ purchase and sale proposals serve as samples of the demand and supply of foreign currency in the informal market. With the information, it is proven (with the VAR models) that the supply and demand of currencies have explanatory power over the future fluctuations of the TRMI in the three currencies and in the direction (correlation) that is theoretically expected.
The econometric analysis demonstrates the economic and financial coherence in the temporal interrelationships observed within the daily historical data of the informal market of the touchwhich is another proof of the validity of the methodology.
