The Consequences of Cuba’s Monetary Unification
Dariela Aquique
HAVANA TIMES — Several months ago, the Cuban government officially announced that the gradual process of reestablishing a single currency system in the country would begin. People have had many expectations and made numerous conjectures since.
The Cuban Convertible Peso (CUC) is currently valued at 25 and 24 Cuban Pesos (CUP), for exchanging from and to CUP, respectively. This has been rather bothersome for most citizens whose incomes are paid in CUP.
For a very long time, thousands of people in Cuba have been forced to exchange their incomes for hard currency to be able to purchase essential products such as soap, toothpaste, toilet paper, cooking oil, razors and other articles.
A few years ago, markets that sell some of these products in Cuban pesos were opened around the country, but the articles sold there are of lower quality than those sold at hard currency stores (even though the prices, calculated on the basis of the exchange rate, are equivalent).
I’ve always thought that the aim of this is to sell us the idea that there are markets with differentiated prices aimed at sectors with different incomes or financial possibilities. This is downright false, because the prices are the same, the only thing that changes is the currency. There is no such differentiation.
The only noticeable difference is the décor of the establishments. Stores that sell products or offer services in CUC are almost always comfortable and glamorous. Those that sell products in CUP, on the other hand, leave a lot to be desired.
The existence of the two currencies created stark differences, between those that could frequent or buy things at such and such a place and those who could not.
Once there’s only one currency in the country again, the CUP, I wonder whether there will be investments in the restoration, redesign and refurbishing of many establishments, such as restaurants, pharmacies, cafeterias, stores and others.
Will prices actually be differentiated according to the quality of these establishments? Will we begin to see many places fall prey to deterioration, administrative neglect or, worse, mistreatment and vandalism by certain customers, who will then be able to frequent and purchase things at these places?
The reestablishment of a single currency system does not only demand a monetary study for the fixing of prices or the changing of the exchange rate, it also entails a number of social questions that will have to be addressed.
Now that Americans can spend credit in Cuba and send money to the island thanks to Obama’s changes to Cuba policy, I’m wondering if Cuba will have far greater incentive to speed up the process of currency unification. Given that some hardline supporters of La Revolucion are wary of seeing their country’s national identity destroyed if American tourists come to the island, it’s possible that all supermarkets that only used CUP may have to be renovated with thick coats of paints and tiles.
Why would tourists not “tolerate” having the CUP pegged at the same rate as the dollar when they very happily now accept the CUC? There’s nothing very mysterious or earth-shattering about this change… just a long-overdue correction to unnecessary hassle of converting between CUC and CUP, which has never been very difficult anyway.
The CUC is currently pegged 1 to 1 with the U.S. dollar and no significant black market exists. The only way a black market will pop up is if the government refuses to sell (or limits sales of) foreign hard currency at the set price. There’s no reason to think they’ll begin to do that.
If it is pegged, a black market value will quickly develop and dominate street transactions. Wisdom would demand that the unified currency be permitted to trade at market value. Of course, given the negative trade balance Cuba maintains, the prospect of a floating currency must give State economists fits.
When there will be one currency, it doesn’t much matter what you call it, CUP or CUC or simply “peso”. The interesting question will be whether the currency will be pegged at an artificial level or allowed to float, and be traded, on the international market.
“Once there’s only one currency in the country again, the CUP,”
Unless there’s been an announcement that I’m not aware of, that’s a bit of an assumption that the CUP in its current form is what will be left when the dust settles. The CUC could be kept (and perhaps renamed) too, as could a new currency with a different value (pegged or floating).
Key word is “usually”. Have a great day.
There isn’t a Cuban shop that is glamorous, but there might be to Dariela’s standards (she is a good writer, which is what matters)
Shops in Cuba will always be in bad conditions. It is not a financial issue, it is a Cultural Issue brought to the Cuban society by the Communist ideology. The communists hated everything that was refined, elegant and beautiful because that was associated with the middle and high classes values that they wanted to destroy.
The ugliness of Cuban architecture and the bad taste of interior designers and construction companies are a cultural-ideological issue. The indifference that people shows when something is ugly and dirty is a cultural-ideological issue.
The unification of currency at the current exchange rate will in fact change nothing. It will just give an appearance of normalization. The underlining “dual system” in the economy will remain. The subsidized goods will remain at a low price. Nationally produced goods will be at the high end and imported goods – loaded with a 230% tax – will remain prohibitively expensive.
What may happen is that it will psychologically create a direct impact of effectively seeing wages in Cuba are abusively low if a man has to pay all of his salary for very few essential goods.
I don’t disagree with you. I only wanted to point out that too often Cubans point of reference is too small. We live in one big world so the word ‘glamorous’ should be uses where it is appropriate. By the way, “all glitz and glitter” is usually what qualifies as glamorous.
The purpose of the dual currency system was to shelter the bulk of the Cuban population from the real prices of commodities and to isolate them from the real world economy. It worked for a whole, at the expense of creating destabilizing distortions in the domestic Cuban economy while building a serious imbalance of trade externally.
The government has known for a while they need to unify the currencies, but they also know the process will be painful. Their chief worry is how to make the change without risking their grip on power. Hence the dramatic rise in repression of dissidents. Hence their desperate, no holds barred defence of their Venezuelan colony.
For the average Cuban, the most significant consequence of the coming currency unification will be an even further drop in their standard of living. The dual currency is essentially a form of subsidy on prices and the cost of labour. The expense of unifying the currencies will reduce the level of subsidy the government can afford to provide. They cannot simply print more currency and raise everybody’s salary. There are already serious shortages of basic commodities in Cuba. Printing more cash will spur inflation, blow the negative balance of trade even wider and only make the shortages worse. When push comes to shove, either the people will have to do without, or the regime will. We all know where that call will fall.
Oranges and apples……..I can show you plenty of stores in US that are as filthy as any I have seen anywhere, bathrooms disgusting, over priced imported goods, staff that wanders around watching the clock, when asked about a specific item, you get a look of “duh”. Been to HARRODS and TIFFANYS, they don’t impress me much, over priced and all glitz and glitter, staff that have a “better than thou” attitude. Prefer my small town stores, swell people, know what they stock and don’t stock, know which direction the sun rises and sets. Thank you very much.
What will Cuba do………….let the CUP float and find its own level of exchange on the markets of the world……whoa, what does Cuba export to the world…nickel….cigars(that is becoming less every year)….rum(that to is slowing)…tourists are not going to tolerate having the CUP pegged at same rate as the US dollar(and that will soon be worthless), oh my, here is the answer the new BITCOIN, another joke on the horizon, creating another worthless money to replace one that is becoming worthless………………?????????????
Dariela characterizes those establishments that sell in divisa as “almost always comfortable and glamorous”. While establishments that sell products in the national currency are truly almost always “underlit, dirty, and depressing”, the CUC stores are hardly glamorous. I would argue that the most well-kept establishments in the whole of Cuba are located in the shopping center attached to the Hotel Comodoro in Miramar or the Carlos III mall and neither of these shopping complexes are “glamorous”. “Glamorous” doesn’t exist in Cuba. Not when you compare these Cubans stores to Harrods in London or Tiffany’s in New York or Paris.