Cuba Begins Process of Unifying Currencies

Tuesday, 22 Oct 2013 09:28 AM

 

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Cuba has approved a plan to gradually eliminate its dual monetary system as part of reforms aimed at improving the country's economic performance, a communique carried by official media on Tuesday said.

"The Council of Ministers has adopted a chronogram of measures that will lead to monetary and exchange unification," the government statement said, giving few details.

"[Unification] is imperative to guarantee the reestablishment of the Cuban peso's value and its role as money, that is as a unit of accounting, means of payment and savings," it said.

Since 1994, after the fall of the Soviet Union, Cuba has had two currencies. One is pegged to the dollar, while the other is valued at a fraction of the greenback's value, angering the population which is paid in the latter, and complicating accounting, the evaluation of performance, and trade for state companies.

Plans to decentralize and introduce market mechanisms into the Soviet-style economy adopted by the Communist Party in 2011 under the leadership of President Raul Castro included currency unification.

The two local currencies are the peso (CUP), in which most wages are paid and local goods priced, and the convertible peso (CUC), used in the tourism industry, foreign trade and upscale eateries and stores carrying imported goods. Neither are legal tender outside Cuba.

In a country where almost the entire economy is in state hands and prices fixed, companies must exchange dollars and CUCs with the government at the official exchange rate of one peso, while the CUC is currently valued at 25 pesos by the government at exchange offices.

The unification of the two currencies is expected to be a gradual process that will take up to 18 months, according to Cuban economists, and will involve devaluing the CUC and perhaps revaluing somewhat the peso.

The official communique said the government would make good on the value of the CUC by announcing any devaluation and giving people time to convert their holdings.

The government has already begun pricing more goods and services in pesos and collecting taxes in pesos, even as it adjusts the official exchange rate by allowing some companies to exchange dollars earned abroad for up to 12 pesos, instead of one, in an effort to increase exports and provide more pesos to the companies to increase wages and buy local products.

The government statement said these measures would become more generalized in the coming months, as would the purchase of CUC priced goods in pesos at the 25 peso CUC exchange rate.

"The main changes in this first phase will be in the business sector to foster conditions that will lead to increased efficiency, better measurement of performance and the stimulation of sectors that produce goods and services for export and the substitution of imports," the statement said.

© 2014 Thomson/Reuters. All rights reserved.

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