Cuba: Beginning of the End of Dual Currency
By Isaac Risco
HAVANA TIMES — The Cuban government announced Tuesday its long-awaited reform to abolish the dual currency prevailing in the island since the 90s, but did not set specific dates for concluding the process.
The Cabinet decided to “put into effect a calendar for implementation of measures that will lead to monetary and exchange rate unification,” reported dpa news in the aftermath of a meeting of the Council of Ministers presided by President Raul Castro on Saturday.
The elimination of the dual currency has been under consideration for some time as one of the next steps in the economic reform process taking place in recent years.
The reforms aim to “update” the Cuban economic model with market elements. However in the words of Raul Castro, they exclude the use of “shock therapy”.
Introduced in 1994, during the “special period” crisis when Cuba opened to mass tourism,
the island has operated with two currencies, the regular Cuban peso (CUP), in which virtually all workers are paid wages and pensions, and the convertible peso (CUC), whose exchange is equated to the dollar and is 25 times that of the CUP.
The CUC then joined the US dollar as a medium of payment allowed on the island. In 2004 the dollar was withdrawn from Cuban commerce to let the CUC be the only official hard currency acceptable for payment in Cuba.
Although the state subsidizes basic services, many imported products are paid for in the hard currency CUCs, as well as internet fees in public facilities.
Many economists believe that the dual currency distorts accounting and hampers economic productivity on the island.
Monetary unification “is not a measure that will resolve all the current economic problems, but its implementation is essential to ensure the restoration of the value of the Cuban peso,” noted the official Granma newspaper on Tuesday.
President Raul Castro had reaffirmed in early July his government’s plans to abolish the dual currency, first announced in 2008 as part of the economic reform agenda. “The phenomenon of the dual currency is one of the major obstacles to the progress of the nation,” Castro told the Cuban parliament.
The dual currency system divides the population into those who draw their salaries or pensions in CUP and those who have access to CUC, usually tourism workers, the emerging private sector or people who receive remittances from abroad.
The timeline according to Reuters news agency is 18 months and the merging is to be done gradually. This is having spoken to Cuban economists.
Of course, what did you expect? A full disclosure will be expensive, that would be the equivalent at inside trading at national level.
Based on the official notice, it looks like they are not aiming for the gradual approach we’ve discussed before (peg CUC to USD, increase inflation until real value of CUP gets to the current rate, then drop one of them), so expect a sudden notice with all bells and whistles (I’m talking about the whole package, fixed exchange rate, frozen bank assets, limited exchange of money in circulation, disruption of economic activities for some time, etc… I’m not even discarding a new currency if they feel peckish)
Au contraire, no timeline was given and no definitive indication as to which currency would be eliminated. It is only assumed that the CUC will be dropped. Check again. Once again, smoke and mirrors Castro-style.
That depends, but chances are this will benefit most Cubans at the expense of the Cubans receiving remittances from abroad.
I have not made the proper calculations, but I expect that remittances from abroad will lose between 50 and 80% of their real purchase power in Cuba after the reunification of markets (thats is, they’ll be sending between 2 and 5 times as much money as they do now for their family to buy the same stuff they buy today)
But thats besides the point, this is a long due change that needs to be done regardless of winners and losers. If they survive the change, they may be able to actually get an idea of how their own economy works and hopefully implement actual economic and fiscal policies.
The news is that before it was going to be done vaguely in the future while now they have an approved timeline and hopefully some kind of plan they will beginning to implement.
Also, it serves as an obituary to the good old tradition of keeping family afloat by sending pocket change from abroad.
The article doesn’t mention how exactly the gov’t plans to eliminated the dual currency system. But we can be sure whatever way they do it, it will be the Cuban people who will get screwed.
This article, like the original press release of the Cuban government is very vague and provides no more information than was already public prior to its release. Raul has stated on several occasions his intent to eliminate the double currency. This simply repeats the same without giving dates or methods. So where’s the news?