Cuba To End Dual Currency System

Above, two Cuban cuc notes left over from last year's cruise. Photo by Armand Vaquer.

Something is about to take place in Cuba on New Year's Day.

Last year, when Mitch Geriminsky and I took a cruise to Havana, Cuba (before cruises to Cuba were halted two months later by President Trump), we exchanged U.S. dollars for Cuban cuc currency. This took place at the cruise line terminal at Havana Port.

Now, it appears Cuba is about to abolish the cuc.

The Economist reported:

After years of dithering, Cuba is finally about to take the plunge. On December 10th the country’s president, Miguel Díaz-Canel, announced that on the first day of the new year it would abolish one of its two currencies. That is a big step towards ridding the socialist economy of distortions that thwart production, drain the treasury and keep people poor. But it leaves in place many enterprise-crushing rules and creates new problems that the government will struggle to overcome.

It set up the dual-currency system in 1994, when the country was reeling from the loss of subsidies from the Soviet Union, on which it had relied during the cold war. Alongside the Cuban peso it created the cuc, a convertible currency pegged to the dollar at one to one. It hoped this would prevent Cubans from dumping pesos in favour of dollars. Importers, which are state-owned, use cuc to obtain dollars on favourable terms, which makes imports cheap. Most Cubans, who work for the state, are paid in pesos. It takes 24 pesos to buy a cuc at the official exchange rate. Workers in the country’s growing private sector, most of whom are paid in cuc, earn seven times what state employees make.

The abolition of the cuc is meant to make the public sector behave more like the private one, and give private firms a better chance to compete. Firms and consumers will now use just pesos, initially at the official rate (though the dollar will remain important). State pensions and salaries are to rise five-fold. But inflation, already high, will increase. Subsidies for water, transport and electricity are being diminished.

Above, Mitch Geriminsky and your truly at the cruise line terminal at Havana Port. Photo by Mitch Geriminsky.

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