Cuba and its Dual CurrencyJanuary 23, 2012 | Print |
Julio De La Yncera
HAVANA TIMES, Jan 23 — One consequence of the Special Period crisis in Cuba was the creation of a dual currency.
There was always a national currency on the island. My parents told me that before the revolution, the Cuban “national” peso was equivalent in value to one US dollar.
This means that it was possible for the money earned by a Cuban worker to be exchanged directly into dollars, since the currencies were at parity.
Once the revolution was established, the conversion of pesos into dollars was eliminated. Many hotels created special shops where one could only buy goods with foreign currencies but not with Cuban pesos.
These small stores were aimed at tourists, but many of the products sold in these shops actually ended up in the hands of Cuban families.
Much later, in the 1980s, exchange centers for gold and other items of value were created where people could take their small family treasures and exchange them for checks in dollar amounts, which could then be used to acquire goods in hard-currency stores.
This was how many Cuban families were for the first time able to buy color TVs, VCRs or foreign clothes of better quality than those produced domestically.
Throughout this period the possession of dollars was illegal. The criminal code in Cuba at that time sanctioned the holding of dollars.
Because of the critical economic situation stemming from the collapse of the Eastern European socialist countries — which meant a loss of trade and assistance for the island — the Cuban elite decided to legalize the possession of dollars.
The main source of dollars for the population came from family members who lived outside of Cuba, in addition to the earnings generated by thousands of Cuban professionals who were (and still are) sent to other countries and paid part of their salary in dollars.
Initially, special stores stocked with better quality and more of a variety of goods accepted dollars as well as a new currency that was created: the CUC (the Cuban Convertible Peso). One CUC is roughly equivalent to one US dollar.
I suppose that the reason this second currency was created was to serve as a mechanism for the government to adjust the value of this currency and the Cuban national peso.
The situation is so fluid that at one point the exchange rate between one Cuban CUC was equal to 100 Cuban national pesos. This dual currency allowed (and continues to allow) changes in the value of money without altering wages.
Therefore, when the CUC increases in value against the Cuban national peso, this in effect produces inflation relative to the national currency.
Likewise, when the Cuban peso’s value rises with respect to the CUC, the Cuban peso becomes inflated (losses purchasing value).
This means that the value of the national currency is controlled through this monetary intermediary.
For the government, this currency proxy serves other functions. It separates the direct exchange value of the Cuban domestic peso from the US dollar.
Likewise, it becomes an immediate method of collecting all of the hard currency circulating inside or entering into the country, since restrictions prevent other forms of hard currency from being used for buying and selling.
This decreases the hard currency in circulation in the hands of citizens and immediately transfers it to the state treasury where it can be used for foreign trade. The other advantage is that the state can manipulate the Cuban peso’s value through this.
From the standpoint of ordinary Cuban citizens, this monetary intermediate becomes a new method of exploiting them.
Today 100 pesos can be exchanged for only 4 CUCs. Tomorrow, the government could alter its monetary policy to devalue the currency, making one CUC worth 4 centavos (four “cents,” or .04 of 1 CUC).
When citizens needs to buy staples, in many cases they can only use CUCs since the only stores where these goods are sold are where trade is exclusively in that currency.
Almost all products — including those produced in Cuba — end up in the CUC shops.
The CUC is one of the most unpopular measures that the revolution has taken in its half century of existence.
The vast majority of Cubans have expressed their displeasure with this monetary intermediary and have demanded the right to exchange Cuban pesos directly for dollars, or dollars for Cuban pesos.
I wonder, just as I’m sure others wonder, when the Cuban government will solve this problem of dual currency that it created?