After years of procrastination, backsliding and false promises, Cuba has decided to take the plunge and unify its monetary system. 1er January 2021, the authorities in Havana will abandon one of the two national currencies in circulation on the island since 1994, a system which until then was unique in the world.
This crucial and complex reform, announced on television by President Miguel Canel-Diaz on December 10, comes at a time when the shortages have never been so severe since the crisis following the dislocation of the Soviet bloc in the 1990s, which had thrown the island into a then unprecedented slump. Without tourism due to Covid-19, with increased spending to deal with the pandemic and heavier American sanctions under the Trump administration, the Cuban economy is running low and sorely lacking in foreign currency.
The announced reform will make the convertible peso or CUC disappear, artificially aligned with the dollar and created at the time to accompany and then replace the American currency. The CUCs will begin to be withdrawn from circulation in early January, only to disappear six months later. Only the Cuban peso or CUP will remain, which is worth twenty-four times less.
By putting an end to the cohabitation between two local currencies, the government explained that it wanted to make the island’s economy more readable and attractive in the eyes of foreign investors. The Head of State, however, saw fit to add, during his speech that he held, sitting alongside the former president and first secretary of the Communist Party Raul Castro, that the reform was not “The magic solution to all problems”.
A wise precaution if we are to believe the experts, many of whom point to the turbulence to come. The reform comes as the island has reintroduced, since October 2019, the dollar, with the opening of appliance stores where you can only pay with this currency. In practice, economists note, the value of the peso could very quickly suffer again against the greenback.
Initially reserved for the tourist sector at the time of its creation, the CUC quickly became widespread. Its rate was established between 24 and 25 Cuban pesos, used for strictly domestic transactions. This monetary duality has allowed state enterprises to import at a preferential exchange rate. The Ministry of Foreign Trade compensating for this public subsidization of the activity.
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