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Goodbye “CUC”, Unification of Dual Monetary System Begins in Cuba

Three CUC. Image taken from Hola Cuba.

Three CUC. Image taken from Hola Cuba.

The official Cuban newspaper Granma announced [es] the beginning of the monetary unification process within the country. Cuba is the only country in the world where two currencies circulate: the Cuban peso (CUP) and the convertible peso (CUC). 

According to the newspaper:

la unificación monetaria no es una medida que resuelve por sí sola todos los problemas actuales de la economía, pero su aplicación es imprescindible a fin de garantizar el restablecimiento del valor del peso cubano y de sus funciones como dinero, es decir de unidad de cuenta, medio de pago y de atesoramiento.

Monetary unification is not a measure that will resolve all of the current economic problems all by itself, but its application is necessary in order to guarantee the restoration of the value of the Cuban peso and of its function as a currency, that is to say, its use in accounting, as a method of payment and of savings.

According to an article [es] published in Cubainformación by the French investigator and professor Salim Lamrani:

En 1993, ante la grave crisis económica que golpeó la isla tras la desintegración de la Unión Soviética, las autoridades de La Habana decidieron legalizar la circulación del dólar estadounidense en el país. Era necesario encontrar las divisas indispensables al funcionamiento de la economía y del comercio y subvenir a las necesidades de la población, particularmente en el sector alimentario. Así, dos monedas circulaban en el país: el dólar y el peso cubano (CUP).

En 1994, además del peso cubano y del dólar, el Banco Central de Cuba creó el peso convertible (CUC) con un valor igual al dólar, lo que hace de Cuba el único país del mundo que imprime una doble moneda. El CUC se usa particularmente en el sector del turismo y para adquirir productos de importación. Así, de 1994 a 2004 circularon tres monedas en Cuba, hasta la desaparición del dólar en 2004, tras las nuevas sanciones económicas que impuso la administración Bush. Ahora, el peso cubano circula con el peso convertible con una notable diferencia de valor: hacen falta 25 CUP para conseguir 1 CUC.

In 1993, confronting the great economic crisis that struck the island after the dissolution of the Soviet Union, authorities in Havana decided to legalize the circulation of the US dollar in the country. It was necessary to find indispensable foreign currencies for the functioning of the economy and commerce and provide for the necessities of the population, particularly in the food industry. So, two currencies circulated in the country: the dollar and the Cuban peso (CUP). 

In 1994, along with the Cuban peso and the dollar, the Central Bank of Cuba created the convertible peso (CUC) with the same value as the dollar, which makes Cuba the only country in the world that prints two currencies. Thus, from 1994 to 2004, three currencies circulated in Cuba, until the phasing out of the dollar in 2004, due to new economic sanctions that the Bush administration imposed. Now, the Cuban peso circulates with the convertible peso at a significant difference in value: it takes 25 CUP to obtain 1 CUC.

Three Cuban pesos. Image taken from Wikipedia under a fair use license.

Three Cuban pesos. Image taken from Wikipedia under a fair use license.

The official note from Granma announces that “the main changes in this first stage will take place in the juridical person (corporate personhood) sector”, with the aim to encourage “conditions for an increase in efficiency, the best evaluation of economic developments, and a stimulus to the sectors that produce goods and services for export and replacement of imports.”

The phasing out of the CUC has received significant attention from the international press, blogs and economic analysts. In an interview granted to the magazine Espacio Laical [es], the Cuban economist Pavel Vidal warned:

El Gobierno debe manejar con inteligencia dos brechas que aparecerán en el proceso de eliminación de la dualidad monetaria. La primera es la brecha temporal que existe entre los costos y los beneficios de la devaluación del tipo de cambio oficial. Los costos son ciertos y se manifestarán en el corto plazo generando estrés en los balances de las empresas e inflación. Mientras que los mayores beneficios se apreciarán en el mediano plazo y son beneficios potenciales que deberán aprovechar las empresas estatales, sobre las cuales siempre pesa la duda en cuanto a su capacidad para reaccionar ante un nuevo marco de incentivos, en particular en una economía centralmente planificada y donde la burocracia ha venido rezagando la reforma.

La segunda brecha se encuentra entre las expectativas que tiene la población sobre la eliminación de la dualidad monetaria y los resultados que verdaderamente se pueden alcanzar. La reforma monetaria evidenciará que la dualidad monetaria no es la principal responsable del bajo poder adquisitivo del salario ni de las desigualdades como erróneamente se tiende a pensar. Estos son asuntos con determinantes estructurales y no solo monetarios. La baja productividad del sector estatal es la causante última de los bajos salarios y, en correspondencia, la que provoca las desigualdades en relación a otras fuentes de ingresos familiares.  

The government must intelligently handle two gaps that will appear during the elimination process of the dual currency. The first is the temporary gap that will exist between the costs and benefits of the devaluation of the official exchange rate. The costs are certain and will manifest themselves in the short term, putting stress on the balance sheets of companies and inflation. Meanwhile, the greatest benefits will be evident in the medium term and are potential benefits that state-run companies will need to take advantage of. Doubt always weighs upon these companies, on account of their capacity to react before a new incentive framework, in particular in a centrally planned economy where the bureaucracy has been lagging behind the reform.The second gap is between the expectations that the population has about the elimination of the dual currency system and the results that can truly be achieved. The monetary reform will show that the dual currency is not the main factor responsible for the low purchasing power of wages nor of the inequalities as one erroneously tends to think. These are issues with determining factors that are structural and not just monetary. The low productivity of the national sector is the ultimate cause of low wages and, accordingly, that which provokes inequalities in relation to other sources of household income.

In the blogosphere, Gisselle Morales, in her blog Cubaprofunda, summarizes [es] some of her main worries:

Dejando a un lado los problemas de la macroeconomía, demasiado complejos para mi aritmética básica, lo que más me preocupa es el efecto de semejante cambio para el cubano común: ¿en qué moneda se valorará el esfuerzo?, ¿cuál será el poder adquisitivo real del salario?, ¿saltará algún día, de los manuales marxistas a la realidad, aquello de “a cada cual, según su trabajo”?

Ignoring for the moment the problems of macroeconomics, too complex for my basic arithmetic, that which worries me most is the effect of such a change for the common Cuban: in which currency will my effort be valued?, what will the real purchasing power of wages be?, will the notion of “to each according to his work” jump from the Marxist manuals to reality someday?

Several commenters pointed out [es] the absence of references to wages in this first official communication. According to Javier Soler, author of Porque Cuba [es], “the note is simply a reminder that this path must be taken but that it is not yet even traced.”

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