The Beginning of the End of Cuba’s Dual Currency? (II)
Dmitri Prieto
HAVANA TIMES — The point of the “psychological barrier” around the issue of dual currency is that if prices charged in CUCs in chopins (hard-currency stores) are translated into Cuban Pesos (CUPs), and these in turn are compared to the salaries paid by the government, this high-prices/low-incomes relationship will reveal the tragedy of the current economic climate.
I don’t want to go into yet another harangue about how many days one has to work to buy a bottle of cooking oil or a few frozen hamburgers or a stick of butter (there’s an excellent analysis in Spanish by the Cuban writer Arturo Arango on this, complete with tables and calculations), but it’s one thing to be aware of “what everyone knows” and quite another thing to recognize it at the official level.
For the last 20 years it has been the dream of Cubans to buy products at a “chopin” using the currency from their wages. But today it has become crystal clear that what determines access to such products isn’t the quality (“convertibility”) of the currency (CUP or CUC) but its quantity.
It’s crystal clear because if you were to use a debit card to make your purchases at a chopin, the balance of your salary in “national currency” would drain out of your account like water running through a slotted spoon.
Recently there has been increased public debate about the real purchasing power of Cuban wages, This has followed the adoption of the new Customs regulations (affecting the importing of articles that are scarce in Cuba) and the new Tax Law (which is not discussed between people and whose content is a mystery to the vast majority of all current and potential taxpayers).
In cyberspace, there are the interesting contributions by acute polemicists such as Felix Sautie and Roger M. Diaz Moreno (both in Spanish), among others.
The possible way out of the problem, trumpeted by the new opportunities for making purchases in chopins (by credit card), would consist of simply declaring the two currencies equivalent at the current exchange rate (or another similar one), and then allowing only one of them in circulation. This is what is in fact being done through the new payment method in chopins with “national currency” – which today is only possible through magnetic cards.
Of course, the provocative contradiction between prices and wages would emerge with full force, especially with the still surviving memory of those legendary days when the Cuban peso and the US dollar were exchanged at a 1:1 ratio.
And one would have to take into account that the senior leadership of both the government and Cuban unions have said quite clearly that at the moment there are no plans for increasing wages.
The aggressive roar of the lion, which is now being heard over the propaganda apparatus of the bureaucracy concerning the social inequality, has generated understandable fears, because (even from the point of view of Marxism) economic truths cannot be propped up with ideological slogans.
A technical discussion of the effects of the dual currency system and how to move to a single currency:
PESOS, POVERTY, AND PERVERSIONS:
WHAT’S WRONG WITH CUBA’S MONEY AND HOW TO FIX IT
http://www.ascecuba.org/publications/proceedings/volume18/pdfs/canler.pdf
One of many interesting insights:
“…the common practice of translating Cuban salaries into dollars using the “free” exchange rate is as misleading as using the official exchange rate for non-personal transactions. The economic reality is that a salary of CP400 is worth less than the US$432 suggested by the official exchange rate, but also more than the US$17.28 suggested by the CUC exchange rate.
The difference in exchange rates between the current system and what would prevail under a free market
(p1—p2) implies that there are winners and losers, as the market is distorted away from a free equilibrium.”
Thanks Dimitri for the second part of your essay. It’s a good discussion, faced with the absurdity of the two currencies one encounters in Cuba – actually it’s not the dual currency system that is absurd – there are quite valid reasons why it was instituted – but the gap between the two.
Travelers to Cuba are caught in the middle. Sometimes there is an easy solution. Taking the Hershey train between Matanzas and Havana for instance, there is a photo of Fidel and Raul in the train station exhorting overseas folks to pay the fare in CUCs. As I recall, it was about 7 CUP – a good bargain for both CUC and CUP payers.
Taking a bus intended for locals – not officially allowed of course – you can also pay the fare in CUCs which is again a good bargain for both categories of passengers.
There are other times when it doesn’t work. The peanut cone vendors whose wares I became addicted to, sell a cone for 1 CUP but in tourist areas like Varadero, they ask 1 CUC, which is of course ridiculous.
From a tourist point of view, I like the dual currency system. It formalizes the unavoidable fact that there has to be two prices – one for cashed-up tourists and one for locals. Otherwise you are subjected to the “Psst, wanna buy pesos, senor” jineteros faction that preys on tourists and is ubiquitous in other Caribbean capitalist countries.
I would like to see the Cuban government work toward a solution that is as satisfactory for Cubans and overseas travelers as possible. I’m confident it will happen.
Moses,
I mentioned the Muslim Brotherhood example because that organization had long established networks operating through the mosques in every neighbourhood and village of Egypt, Libya & Syria. The secret police of Gaddafi, Mubarak and Assad could not even keep track of all these centres let alone repress them. I do not believe there is anything like that in Cuba today.
There certainly is an alternative to bloody suppression: a peaceful transition to democracy. But tyrants rarely seem to choose that option.
Griffin, I agree with you completely. I do not mean to imply that the US military with “boots on the ground” would assist in the insurgency. I DO mean to imply that the wealth of the Cuban diaspora would avail itself to assist the Cubans in the streets. They have been waiting for this opportunity for 53 years and have hundreds of millions of dollars in private money to fund the unrest. This diaspora is at least as resourceful as the early Egyptian and Libyan insurgent support and far more motivated. Moreover, the senile Cuban leadership is ill-prepared for a 21st century insurgency. Frustrated Cubans, armed with sticks and machetes at first, much like what we saw in August of 1994 would fill the streets. I have no doubt that very soon afterwards smuggled arms, purchased by Miami money, would appear in the hands of these frustrated Cubans who themselves were unable to buy even the essentials to live on. To no one’s surprise, the Castro’s would order the military to put down the unrest at all costs. Unlike 18 years ago, there would be no charismatic Fidel to address the crowd with a bullhorn to encourage them to return to their homes. Worse, we are talking about an entirely new generation. This one even less connected to the idealistic foundations of the revolution and even more desperate for change. Who would come to the aid of the Castros? Of course, Venezuela and the ALBA leadership would issue press releases chastises the unrest but who would actually send the bullets and mortar to the Cuban regime in the same way Iran is assisting Syria today. No one, at least not past the US blockade put in place no doubt. The Castros would face an insurgent movement of enormous proportions with no resolution save a bloody suppression.
Moses,
Everybody agrees that a sudden elimination of dual currencies in favour of one (CUC or CUP) would be a tremendous shock to the system. But I don’t see a reactions that would parallel the events of Libya or Egypt. The situations are completely different. There is no large militant opposition organization inside Cuba in any way even remotely comparable to the Muslim Brotherhood inside Egypt.
Furthermore, whatever might erupt in Cuba in response to a currency crisis, whether a civil disturbance or a humanitarian crisis, I do not see either Obama or Romney would want to get the US involved militarily. They would offer to send humanitarian assistance, food & medicines etc., and the Cuban regime would be faced with an awkward decision over whether or how to accept it. But the time of US military intervention in Cuba is over. There is zero political support for such an intervention, at least outside of a few Miami coffee shops frequented by aging exiles.
One possible path to moving to a single currency would be to see the rise of the value of the local peso until it’s on par with the CUC. That would require a long run of favourable economic growth, that nobody sees the regime capable of pulling off. It’s been 20 years since the Special Period, and they’re still not back up to the GDP of the late 1980s. Raul’s economic “reforms” which amount to laying off public sector workers, allowing then to open highly regulated small businesses, and then taxing the sh*t out of them, is no path to prosperity.
And so the economic pressure cooker of the dual currency system continues to simmer.
I realize it does not resolve the current problem by criticizing Fidel’s stupidity in introducing a second currency in the first place. I just want to mention it anyway. It was akin to the use of a tourniquet to stanch the bleeding from a deep wound. It should have only been used in life or death situations and if you leave it on too long, the tissue below the tourniquet dies and you lose the limb. The CUC was left on the patient too long. It is inevitable that there will be a shock to the Cuban economy once the CUC is eliminated. (To eliminate the CUP is even more draconian.) The Castros are understandably unwilling to engage in such dramatic reforms at this stage of their regime. They know that the impact set in motion by such a move could be just what it takes to trigger the “Cuban Spring” that anticastristas are anxiously awaiting. On this issue, I agree with the most paranoid of the Castro syncophants. The overrun of the regime by anti-Castro money and resources would be overwhelming. The overthrow of Egypt and Libya were just dress rehearsals for the drama that would unfold in Havana. A second-term Obama or, God forbid, a first-term Romney would have no choice but to assist insurgents with the full weight of the resources and intelligence available from the US. The good news is it would not take long. Life in Cuba under the dual currency is sometimes confusing and feeds the increasing inequality within Cuban society. To eliminate the CUC would be a bigger disaster.
The dual currency was introduced with the intention of separating the local economy from the tourist economy. This would serve to protect the average Cuban from the inevitable inflation the growing influx of tourist dollars and euros would bring. Another purpose was to shelter Cubans from the allegedly corrupting influence of the foreign devils. However, the longer the shelter was allowed to persist, the greater the shock will be when it is finally removed.
To move to one currency there are two possible paths:
1. Make the local peso the only currency. Allow tourists to convert dollars & euros to pesos. The result will be a huge flood of money and sudden inflation.
2. Make the convertible peso the only currency. The result will be a sudden drop in the purchasing power of the average Cuban, who are already pushed to the edge.
Neither of these options would be popular among the people, and each would hold the potential for serious headaches for the government.
Are there other options? Or some way to move gradually so as to lesson the shock? Changing a national currency is kind of like changing the rules for which side of the road cars are to drive on: you can’t phase it in.