Cuba to scrap its two-tier currency system

Move could add to workers' incomes and remove major hurdle to increasing trade

PUBLISHED : Wednesday, 23 October, 2013, 4:14am
UPDATED : Wednesday, 23 October, 2013, 4:14am

Cuba took the first step towards scrapping its two-tier currency yesterday in a move that could boost local workers' income and remove a major hurdle for importers and exporters.

The government said it had approved a plan to gradually eliminate the dual monetary system that has been in place for the last two decades, part of reforms aimed at improving the Soviet-style economy's performance.

"(Unification) is imperative to guarantee the re-establishment of the Cuban peso's value and its role as money, that is as a unit of accounting, means of payment and savings," a government communique carried by official media said.

Cuba's convertible peso (CUC) is pegged to the US dollar, while the local peso (CUP) 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.

Most wages and local goods are priced in CUP while the dollar-pegged CUC is 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 are fixed, companies must exchange dollars and CUCs with the government at the official one-to-one exchange rate, while the CUC is valued at 25 pesos 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 the peso somewhat.

Juan Triana, an economist at Havana University's Centre for Cuban Economic Studies, applauded the move but said more details were needed on the new official exchange rate.

"This will eliminate the crazy situation today where a company is profitable in dollars and runs at a loss in pesos, and may allow these companies to improve their workers' wages," he said.

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.

President Raul Castro's government has begun a series of pilot projects aimed at increasing demand for pesos versus CUC and thus the peso's value.