The CUC bites the dust as the US Dollar gains ground
By Circles Robinson
HAVANA TIMES – President Miguel Diaz-Canel announced Thursday the end to one of Cuba’s two currencies will take place on January 1st. He spoke on national TV with the all-powerful Raul Castro, head of the Communist Party, silent at his side.
The surviving currency is the regular Cuban peso (CUP) and the loser is the CUC, the currency tourists used.
The big winner is the US dollar which will start out fixed at 24 pesos to 1 USD, said Diaz-Canel. The CUC substituted the USD back in 2004, ordered by Fidel Castro. The catch is the government doesn’t sell dollars, needed for basic product shopping in its retail stores. On the street, the rate currently ranges from 40 to 50 pesos for one dollar.
The government has put together an economic “update” package of over 200 measures which will gradually come into effect. Foreign investors, certain state companies and their executives, and Cubans with capital will be the big winners with the new rules. As to the general population, the government assures the measures will stimulate greater production and purchasing power.
What currency will tourists use?
It’s not known whether visitors to Cuba will use cash dollars at hotels, restaurants and stores or the regular pesos. If it’s the latter, and they have to sell their USD at the 24 to 1 rate, the purchasing power would be greatly reduced. This because at 24-1 the peso is highly overvalued, something even top government economists previously stated.
The government has announced an up to 500% increase in the minimum wage in the State Sector, which controls over 85% of the economy. How that will be financed in a time of economic crunch and depressed production of goods is still a mystery. The implementation date of the wage hike is still not known.
Likewise, when that takes place, most subsidies will be dropped on rationed products, which many depend on. Whether the net result will mean an improvement in people’s purchasing power remains to be seen.
The fate of pensioners, who will also receive an increase, is still unknown. They currently receive an average equivalent of 10-12 USD in pesos. To reassure people, the government repeatedly insists that nobody will be left to their fate in Socialist Cuba.
Diaz-Canel noted the economic “update” was first approved by the Communist Party in 2011 and then reapproved in 2016. He said the government would begin issuing detailed information on the policy changes in the coming days. He warned that undesired inflation may result, but said strict price controls and stiff punishments are planned.