Cuba’s Mad Array of Exchange Rates

Vicente Morín Aguado

HAVANA TIMES — True monetary unification will be difficult to achieve in Cuba. The steps taken so far, coupled with what we know about how the Party-State operates, suggest we will continue to see the opportunistic use of multiple exchange rates, a possibility created by the monopoly that the State maintains over all economic sectors (one of the so-called “advantages” of socialism).

The government has declared that the two-currency system will come to a definitive end in 2016. With evident discretion, the press has not offered the slightest foretaste of this controversial process, considered the toughest step in the implementation schedule of the Guidelines of the Party Congress, roadmap of the reform process now and underway, euphemistically referred to as the “updating of Cuba’s economic model.”

Let us go straight to the heart of the matter, skipping over some details (as the Cuban economy is like Frankenstein’s monster, witch patches have been applied in the course of years, following nights of intense and uncontrollable fevers).

At one point, the novelty of applying two sets of prices to different products was approved. Articles purchased at hard-currency stores are sold in CUC, using the 1 CUC (Cuban Convertible Peso, or “dollar”, in street parlance) to 25 CUP (Cuban peso) exchange rate. Now, a television set valued at 300 CUC can be purchased at 7,500 CUP. It’s clear nothing has changed for the majority of Cuba’s tormented buyers.

In addition, dealings where a 1 CUC – 10 CUP exchange rate applies are authorized between State companies and between State companies and self-employed parties or cooperatives. This exchange rate is used to revalue State funds within the monetary unification process underway.

Also and not less significantly, at the Mariel Special Development Zone, Cuban monopolistic employers will pay workers on the basis of a 1 CUC – 10 CUP exchange rate and will consider the US dollar to be on a par with the CUC. This, in fact, introduces yet another exchange rate to Cuba’s national economy, that of 1 USD – 1 CUC.

What’s more, the population legally acquires 1 CUC at 25 CUP and sells it at 24 CUP, and informally accepts rates of 1 CUC – 23 CUP and even 1 CUC – 20 CUP, when transactions are carried out at State stores which had been authorized to receive only CUP for their products or services till now.

Both legally and de facto, Cuba has a system of multiple exchange rates which are likely to persist in the foreseeable future, given the customary trial-and-error (if not downright improvisational) methods inherent to the governing elite that is today leading the reform process, “slowly but surely”, intent of finally delivering the earthly paradise of communism promised so many years ago.

Following the decision to eliminate the existing two-currency system (at least in its most visible expression), playing around with exchange rates and applying specific rates in some cases, has till now been presented as a temporary solution, but it could well become a recurrent method of the bureaucracy that holds the fate of the country in its hands.

Two economists who have for years been linked to the spheres where Cuba’s national economic decisions are made, Pavel Vidal Alejandro and Omar Everleny Perez, leave us with the following warning: “The era of multiple exchange rates as an effective option in the design of exchange policy designs, has been left behind internationally owing to their proven inefficiency and their high costs.”

The quote is taken from the first, 2014 issue of Cuba’s Espacio Laical (“Secular Space”) magazine. The authors describe Argentina’s and Venezuela’s negative experiences with multiple exchange rates, and wish that, in Cuba, such decisions “are only a transitory mechanism, in anticipation of a definitive convergence with a single exchange rate for everyone.”

The backdrop to this is acceptance of the market, whose unavoidable presence is the great dilemma communists face when they design domestic economies. A single currency is needed for the optimal flow of monetary and market relations, and it is the one common denominator of all economic activity.

To date, we continue to regret that Cuba’s revolutionary leadership has not undertaken a profound and sincere self-criticism with respect to its economic experiments, all of which bear the eloquent stamp of negative results.

Once again, the specter of appearances comes along to becloud reality. We may finally end up with a single currency in our pockets and several to gage the real workings of the economy.

We may only get half of the way there, swimming euphorically towards a beach whose sands await the steps of homo erectus, and perhaps even homo sapiens.
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11 thoughts on “Cuba’s Mad Array of Exchange Rates

  • October 21, 2014 at 12:18 pm

    Yes. they make sense. A lot more than your words.

  • October 21, 2014 at 10:17 am

    You have all your right to discuss whatever you want to discuss Sir, but do they make sense?

  • October 16, 2014 at 6:03 am

    I agree completely with Cubaqus. As the tourist and Cuban nationals economy rarely intersected the possibility of tourists benefiting from the state subsidies was remote to say the least when the CUC was introduced.

    Tourists would be guided to particular health facilities where they actually pay extortionist rates and not the ones used by Cuban nationals, the same applies to hotels and all other tourist sites. During all my travels in Cuba I have never seen a foreigner in the queue for bread rolls or in the ration book shops. So the myth of the need for a dual currency to “protect” the subsidies of Cuban nationals carries absolutely no economic or financial merit other than forcing foreigners to “hand over” their hard currency.

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