The Long-Awaited End to Cuba’s Two-Currency System

The Long-Awaited End to Cuba's Two-Currency System / Ivan Garcia

Posted on November 3, 2013



Danilo, an illegal hard-currency speculator, has had a busy week. "I buy

dollars, euros and convertible pesos. But after the government announced

it would move to a single currency, I am without funds," he says from a

centrally located Havana boulevard.



Some of the CADECA currency exchanges have closed early because they did

not have enough "chavitos" to carry out transactions in convertible

pesos, the stronger of Cuba's two currencies.



Although the regime is trying to ward off panic by issuing an official

statement indicating that the measures to be implemented will have no

effect on savings, there were long lines to be found at branches of

Banco Metroplitano.



"In only five hours fourteen customers closed their hard-currency

accounts at the bank where I work" said an employee. The news comes as

no surprise to one segment of the population.



An avalanche of rumors in mid-August about a possible devaluation of the

convertible Cuban peso, or CUC, led hundreds of people to exchange their

Cuban pesos, or CUPs, for hard currency.



"Two months ago I withdrew all the chavitos from my bank account and

bought pesos. It isn't clear how currency unification will be

implemented but rumors are that, before it disappears, the convertible

peso will be gradually devalued," says a self-employed worker.



In Cuba rumors are often more credible than information found in the

state-run media. Eusebio, an economist, believes the dual-currency

system leads to distortions in prices, accounting practices and domestic

commercial transactions.



"Many local businesses are profitable because they sell their

merchandise in convertible pesos. For example, domestically produced

mayonnaise sells for between 3.0 and 5.5 CUC, or roughly 75 to 132 CUP.

Once currency unification occurs, this disparity will disappear and

inflated prices, which result from the stronger currency, will have to

be adjusted. Nothing will be solved by replacing the chavito with the

Cuban peso if stores maintain rigid price structures in CUC or CUP. The

real price of rationed rice is not 20 centavos a pound, nor is 800 CUC —

or 20,000 CUP — the real price for a plasma screen TV. Currency

unification will be complicated. Businesses will be affected and could

suffer losses," he claims.



Some chain stores are already selling products in pesos tied to the

exchange rate of the convertible peso. Magaly, a high school teacher,

does not believe this will solve anything. "If a large segment of the

population cannot afford to pay 25 chavitos for food, they won't have

625 pesos for it either," she notes.



An official with a state agency asks for patience. "The salaries of

employees who work in profitable industries which generate income in

hard-currency (such as tourism, healthcare, Cubana de Aviación or

ETECSA*) will begin earning salaries based on the new

paradigm relatively soon. Their buying power will be increased. It will

be healthy for the consumer as well as for society to re-emphasize the

value of work. The inverted pyramid, where professionals earn salaries

lower than that of a garbage collector, will gradually change," though

he did not provide details.



The convoluted announcement published in Granma raises more questions

than it answers. People hope that by year's end the guidelines for

creating a single currency will begin to take effect.



When Fidel Castro made it legal to possess dollars on June 26, 1993, the

Cuban peso and the U.S. dollar went into circulation. In May 2004 the

United States fined the Swiss bank UBS for violating the embargo and for

having "laundered" almost four billion dollars destined for Cuba. Fidel

Castro was furious. Six months later, in November 2004, the dollar was

replaced with the convertible peso. But for Castro it was not enough to

remove the dollar from circulation. In March 2005 he imposed an 18%

surcharge on dollars sent to the island.



When his brother Raul came to power in 2006, the goal became to attract

more greenbacks, so he reduced the surcharge on the dollar to 10%. In

spite of this undue financial burden, high food prices

in hard-currency retail stores and slow turnover of hundreds of

inventory items in state-run stores, the volume of remittances from

family members overseas has grown phenomenally.



In the year 2000 the country brought in 986 million dollars in

remittances. By 2013 it had grown to 2.6 billion. It is estimated to

surpass 2.8 billion in 2013. This does not include almost three billion

additional dollars in the form of food, clothing, cell phone account

payments, household appliances and medications that enter the country

through "mules" and travel agencies based in Florida.



A casual poll of twenty or so Havana residents, who these days argue

passionately over the ramifications of currency unification, suggests

that the main problems will continue to be poverty-level salaries and

excessive regulation in an inefficient system.



According to the National Office of Statistics and Information the

average salary in Cuba is about 466 pesos or some 20 dollars a month. In

spite of lukewarm economic reform efforts, agriculture has yet to take

off and industry needs something more than good intentions to be efficient.



Cuba imports everything from fruit for the tourist industry to

toothbrushes for sale to the public. No one believes for a moment that

the doing away with the dual-currency system will improve his or her

quality of life. Rather, it will represent the beginning of a new set of

challenges.



Iván García



Photo: Diario de las Americas



*Translator's note: The state-owned telecommunications company.



29 October 2013



Source: "The Long-Awaited End to Cuba's Two-Currency System / Ivan

Garcia | Translating Cuba" -

http://translatingcuba.com/the-long-awaited-end-to-cubas-two-currency-system-ivan-garcia/