Currency Unification in Today’s Cuba

Joaquin Pujol, a Cuban with decades of experience at the International Monetary Fund, shares his thoughts and experiences about Cuba’s dual-currency system.

Por Vicente Morin Aguado

Joaquin Pujol at the recent annual conference of the Association for the Study of the Cuban Economy.

HAVANA TIMES – The Cuban people’s longing for a single currency became surprisingly apparent during the debates being held about constitutional reform, when opinions were made public, calling for an article that endorses the Cuban Peso as the country’s single currency. Joaquin Pujol talks about what he classifies as “the most commented and long-awaited economic decision in Cuban history.”

Joaquin Pujol: The current system gives important subsidies to some state companies, reluctant to give them up, as well as fears of a change which will lead to inflation that would in turn lead to political backlash.

HT: Would it unveil a hidden truth?

JP: If currencies and exchange rates are unified, subsidies will become obvious and the incentives for a black market will fall drastically. Companies that lose their subsidies will have to close their doors, others won’t be able to keep themselves going because they are totally inefficient.

HT: Do subsidies seem to be a core problem today of Cuba’s financial landscape?

JP: When a company is paying its employees in one currency, the weakest one (CUP), and it receives a part or all of its revenue in another stronger currency (CUC), (worth 25 times the former), subsidies are implied. If other cases, the companies that don’t have assets in CUC are in fact paying a tax.

HT: Let’s say for argument’s sake that there is a single currency, only one exchange rate, and the situation that is being forcibly upheld by the State’s hold of this monopoly is revealed. They will all share this new reality. What are the solutions?

JP: This problem can be solved, but it implies a huge political cost because someone is going to have to foot the bill, which would mean that the person receiving a lot will receive less and the person receiving less will need a subsidy to survive this change.

HT: What’s the solution?

JP: Cuba needs money and it doesn’t have these funds nationally as it gets by with a growing shortfall budget. Those who receive more won’t be happy about losing their benefits, while the others, the majority I’m sure, will need to reduce the effect of what is coming their way. These much-needed subsidies must come from the central bank, through the State budget. That implies money without backing because it doesn’t have the funds and which will create inflation and nobody is going to like that. Inflation is really a tax that the entire population pays for an imbalance in the economy. Increasing food prices and prices of all consumer goods can lead to social unrest.

HT: We have reached a time when we need a large loan… who can we ask?

JP: I have been an economic adviser in several countries with these problems. They have gone to the IMF for this much-needed loan, and this organization lends the money, but they demand that measures be taken to correct the situation as this borrowed money is on the line and what this money is meant for. Cuba isn’t a member of this organization, just like North Korea isn’t, but the rest of the world is, including China and Vietnam.

HT: You and readers agree when you say that a serious reform of the system will reveal our economic reality, which is dangerous for a government that has been in power for 60 years promising a prosperity that is becoming more and more remote.

JP: Cuba’s main sources of foreign currency today are exports of its medical services and the exile community’s remittances to their families. Today, some countries who used to receive medical services have broken or limited their agreements and others, like Venezuela, are experiencing problems and can’t pay for them. Cuba used to be the world’s greatest sugar exporter, but this industry isn’t important anymore. Before the revolutionary government, Cuba also exported meat, vegetables, fruit, fish, etc., but today, it imports 80% of the country’s food.

Cuba imports 50% of its energy needs and it enjoyed subsidies for a long time, first from the Soviets, then the Venezuelans, which are impossible now. There have been conversations with French companies about providing natural gas-based energy, but this involves prices that the Cuban government believe to be impossible for Cuban customers to pay and attempts to explore oil reserves in the sea haven’t had any encouraging results.

The state business sector is extremely inefficient and has excessive personnel, needing subsidies which are mostly channeled via the dual-currency system.

HT: Any other consequences that you haven’t yet touched upon?

JP: Investors consider Cuba’s dual-currency system a significant risk which tends to encourage corruption and inefficient economic operations. Raul Castro made the right decision when he opened up the economy to self-employment, it was said that the emerging workforce would be over 1 million persons, they are only half-way. Continuing to make progress in this direction would be the right thing to do because the number of workers still at inefficient state-led companies is still much too high and if this currency reform does take place, many of them will be unemployed.

HT: What has the experience of other countries, some former Socialist states, taught you?

JP: Swift implementation of changes tends to minimize the costs. Economic recovery will be just as great but in less time. Waiting about is the worst thing you can do when it comes to exchange rates and currency because the situation can fluctuate for the worse.

HT: Meanwhile, time goes by and we are still waiting for an inescapable decision that has yet to come…

JP: The worst thing is the loss of Cuba’s human capital, people don’t want to stick around in such a bleak economic landscape, after excellent professionals have been trained in every field. The population is aging, it isn’t productive, it’s a burden for families, pensions are becoming less and less. People are losing trust in credits, banks, currencies… in everything.

Vicente Morin Aguado: [email protected]

8 thoughts on “Currency Unification in Today’s Cuba

  • Unfortunately, in your pompous sanctimony, you missed the obvious point. If Cuba actually wants to unify its currency, it needs to go with the CUC rather than the CUP. The Cuban people want CUC not CUP…..because its value is tied to the dollar. Without a currency that is pegged to the dollar, or at least to the Euro, the Cuban currency will fail on the international market, because the Cuban government is not perceived as creditworthy.

  • If by over-stated you mean that you are completely wrong, then we agree. The Castro CUC is worth less than Cuban toilet paper outside of Cuba. If you know anything about Cuban toilet paper, then you will understand what I mean.

  • I agree I have overstated the exchange-ability of the CUC. While it is easily exchangeable in Cuba, it is very difficult outside of Cuba. Still, if one has CUC, one way or another it can be converted to dollars. Not so for CUP. For this reason, CUC is superior to CUP, which is nearly impossible (for a foreigner) to convert to dollars, even in Cuba.

    Without the assurance that CUP can be converted to dollars, it will never succeed. There will be another black market in dollars.

    Yet, it is dramatically superior to the CUP, which is not exchangeable for USD

  • You are horribly misinformed. Neither of Cuba’s two currencies has any value outside of Cuba. Fidel Castro created the CUC because he threw a hissy fit at the US after we denied his use of the US dollar in international transactions. He made the US dollar illegal in Cuba and created the CUC for Cubans to “exchange” the dollars they were holding at the time for a legal local currency. Some of the other stuff that you wrote is mostly true however.

  • This problem is like a bad marriage – the sooner it is solved the better. The ultimate goals are a market that is open to foreign investment and a single currency that is freely exchangeable in the international market. But getting there will mean hardship for virtually everyone in the short term. The first step has to be the elimination of the CUC. This was a temporary measure brought in to enable Cuban State companies to repay intercompany receivables and payables with paper that was equivalent to the USD. It was simply a “unit of account”, hence the name “Como Unidad de Cuenta”, or CUC. Because of the shortage of foreign exchange, the CUC has become ubiquitous. But the Cuban peso, or cup, is still the national currency, so it makes sense for this to remain. Good luck to everyone!

  • Some currency exchange houses in Canada do exchange CUC, but they are not receiving that cash from Cuba. It is Canadian tourists who had CUC left over who are selling it to them.

  • CUC is also useless outside Cuba. To my knowledge it not possible to exchange CUC’s in any country.

  • The problem of a dual currency is obvious. The solution is more difficult.

    As a point of nationalistic pride, it is understandable that Cuba would like to strengthen its national currency (CUP). Unfortunately, as a practical matter, CUP is totally worthless outside of Cuba. Other countries will not exchange into CUP. It does not have any value in Europe, Asia or the U.S. No one wants CUP because it can only be used in Cuba to buy from government stores.

    The lack of value and exchange-ability of the CUP is the reason the Cuban government created the Convertible Currency (CUC). It is pegged to the U.S. Dollar. One for One. As a result, the CUC can be exchanged for value worldwide. It has value. People will accept it. It is stable.

    Unification of Cuban currency into CUP will be a disaster. The international community will not accept a currency that has no intrinsic value. This is partly due to Cuba’s revolutionary history. Cuba confiscated all private property in 1959. It cannot feed its people. It must import its energy. It has been running a deficit for years. It does not allow foreign investment. Foreigners are not stupid….they don’t want a currency that is backed by this type of government.

    If the only currency is the CUP, Cuba’s suffering will increase. Its limited ability to pay for its imports will be destroyed.

    The answer to the problem is for the Cuban government to abolish CUP and deal exclusively with CUC. The CUC has demonstrated value (because it is pegged to the dollar) and will be accepted. It will require a major adjustment by the Cuban people and government Subsidized industries will need to become more efficient or they will fail. People will need to adjust to the fact that there is a cost to everything…..nothing is really free. But in the end, ambition, creativity and honest labor will be rewarded. People will prosper as Cuba re-enters the world economic community.

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