pic: Tiago Claro @tiagoclaro
This past week an audio of an important meeting at the highest level circulated on several social networks. The audio, apparently leaked, talked about the unification of the currency on the island.
Although this rumour has been officially denied by the Central Bank of Cuba, it has foster, not only the debate, but sort of state of fear and also some uncertainty about the future of the so-called Cuban convertible peso (CUC) and the circulation of the double currency in the country.
A little history
Anyone that has visited Cuba since the 90s knows that the island has two-currency system: the Cuban convertible peso (CUC) and the national currency (CUP or MN). While the CUC is equivalent to the dollar 1 to 1, also 1 CUC is valued at 24 CUP. None of them have value abroad.
The decision was taken in 1994 to ease the difficult situation of the Special Period (deep economic crisis in Cuba after the collapse of the socialist camp). Therefore the CUC began to circulate in Cuba together with the US dollar. Later in 2004 Cuba banned the USD transactions so all American dollars had to be exchanged to CUC in order to buy products and services on the island.
In 2011, due to the country’s difficulties to operate with that currency, a 10% tax was imposed on the exchange of USDs to CUCs. US imposed the economic embargo against Cuba in October 1960.
Double currency and wages in Cuba
Cuban workers receive their wages in Cuban pesos (CUP), but many of the essential products are sold in the stores in CUC. Last year, the average salary reached the figure of 879 Cuban Pesos (36,62 CUC).
How is it possible to survive with these exchange rates? In most of the cases thanks to the foreign currency that many families receive from abroad. Years later with the new labour regulation that allowed self-employment, the development of tourism and the foreign investment, many Cuban families were able to increase their monthly incomes.
Then new payment systems and monetary policies were put in place, stimulus were paid in CUC and wages and pensions were increased in July 2019.
Back in October 2013, the State announced that it would begin to take steps towards the monetary unification and the disappearance of the CUC as the official currency. This process has been slower and more complex than expected. Finally, the first trimester of this year brought the COVID-19 pandemic. For a country so dependent on tourism and services, this new situation has become very complex.
Trumps’s administration has taken care of setting things as worse as possible for Cubans.
COVID-19 and the end of the CUC
Forced by the prevailing situation (shortages and lack of income) the Cuban government had to take drastic measures regarding its liquidity. First was to authorize bank accounts in freely convertible currency (MLC) and to enable stores that will only operate through magnetic cards linked to those accounts. US dollars does not officially circulate but can be used to buy products in these stores.
The ten percent tax on the dollar exchange was eliminated to encourage Cubans to deposit their bank savings in this currency. Later, many establishments that operated with both currencies began to accept only Cuban Pesos (CUP). It is obvious that the CUC is most likely to disappear.
After months of forced confinement and with many of the fundamental economic activities inactive, it is unlikely that the government can assume in the short term the consequences of the disappearance of the CUC. First of all, it is important to increase salaries so that families can afford the basic products.
During the following months Cuban banks branches will still need to operate as a vital service, not to mention how important is to avoid physical queues nowadays. Although I do think that many of those assertions “filtered” are valid, I am not sure if that meeting really took place or the audio was intentionally leaked to create more concern on the Cuban population.
The truth, officially clarified, is that there will be no massive withdrawal of the CUC on October 1st. So an important part of the leaked audio is clearly not true. The Central Bank of Cuba also clarified that the monetary unification will not affect the circulating cash or the bank deposits.
These type of “new drastic measures” are not new. At the end of 2019 the Cuban Minister of Economy and Planning had to deny that a new monetary policy would come into effect on January 1st, 2020, establishing a new exchange rate of 1 CUC = 50 CUP.
Is clear that all the steps taken by the Cuban government suggest that in the short/medium term the double-currency system will disappear, so instead of spreading rumours it is better to get ready for an upcoming scenario where only the Cuban Peso will circulate in Cuba.