“One country, two currencies” has long been one of Cuba’s particular idiosyncrasies.
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Yet times are changing, with the Cuban Government announcing on Tuesday that it plans to end the dual-currency system in the country.
The Cuban convertible peso (CUC) and the Cuban peso (CUP) are both legal tender in Cuba; though neither can be exchanged in foreign markets. CUCs are pegged to the US dollar, and worth 25 times as much as CUPs – which are only about 4 cents each.
Yet where most workers are paid in CUP, nearly all goods are priced in CUC, exacerbating the creation of a two-tier class system between privileged Cubans and those working in the local economy.
This has made the system unpopular, and ultimately led to its current downfall.
In 1993, after the collapse of the Soviet Union and many years of substantially generous trade arrangements with the Eastern bloc, Cuba was in desperate need of hard currency.
Therefore in 1994 and with few other options, Fidel Castro made the decision to legalise the American dollar to stimulate the country’s economy – ownership of which was previously a crime and punishable by prison.
Dollar stores sprang up around Cuba to capture the inflow of money from new tourists. And whilst these shops initially sold “luxury” items like perfumes and fancy home ware utensils, the currency soon spread to cover most consumer goods.
Meanwhile, all Cuban state workers were still paid a pittance (less than UAS 20 a month) in the old Cuban peso – creating hardship for the majority.
In 2004, the dollar was therefore removed from circulation – and replaced by the convertible peso.
However for most of Cuba’s population this nothing but a name change, and when Raúl Castro took over presidency of Cuba from his brother Fidel in 2008, he had promised to replace the unusual system.
The announcement in Granma – the Cuban Communist Party newspaper – stated the change is to be a gradual process.
Yet the Government has given no timetable, instead only declaring that the process will not hurt either currency.
To ensure its legitimacy, the transition is likely to proceed cautiously, firstly allowing state enterprises to trade using hypothetical exchange rates and selected shops beginning to accept payments.
“The currency unification isn’t a measure that will resolve on its own the current problems of the economy. But its adoption is vital to restoring value to the Cuban peso,” the announcement read.
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