Cuba Seeks to End Convertible Peso and Dual Currency System

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Peso coins Photo by Steve Johnson on Unsplash

Dr. Jorge I. Dominguez held a position as professor at Harvard University and has a focus on Latin American trade and politics. A particular area of interest of Dr. Jorge I. Dominguez has been political and social developments in Cuba, which still exists under the onerous restrictions of a Communist government.

As reported by Reuters, one recent development in Cuba’s state-run economy involves an attempt to move beyond a system in which there are two currencies: the peso and the convertible peso (CUC), which is pegged to the US dollar.

The CUC was instituted after the collapse of the USSR to cushion industry and the country’s citizens from the impact of Cuba’s loss of a major benefactor. Existing in a labyrinthine tango, the two currencies are exchanged at various rates.

For state owned businesses, generally, the rate is 1:1, while for ordinary citizens the rate is 24:1. Still other conversion rates exist for transactions at hotels and agricultural entities, and for wages paid within Cuba’s special development zones. With state-run retail outlets across the country pricing items in CUC as well as pesos, the effect has been to encourage imports, rather than exports, and to mask deficiencies in state-run enterprises.

Bringing the 1:24 public exchange rate in line with the 1:1 official rate is a challenging proposition. Aligning the exchange rates is predicted to cause rampant inflation and bring the precarious financial situation of many state-run companies into the open. In response, Cuba has increased wages and frozen many retail prices, such that social dislocation effects can be minimized. This is not a sustainable long-term solution..

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