In Cuba, two currencies that will soon be just one

HAVANA, 24 Dec. (AFP) Cuba is preparing to unify the two currencies circulating on the island: the CUP, the Cuban peso, and the CUC or convertible peso.

No date has yet been officially set, but there are several signs that the process is already underway.

The idea is to keep the UPC (24 units for one dollar) at the expense of the CUC (equivalent to one dollar). But there remains a difficulty: the abolition of the preferential exchange rate from which public enterprises benefit (1 CUP per dollar), which represents 85% of the economy.

“There is no race against the clock,” Economy Minister Alejandro Gil told AFP. Several elements show, however, that the process is already underway:

1. The return of the dollar

The dollar has not been in circulation since 2004 in Cuba and the CUC was exchanged for the currencies that tourists bring to official exchange offices.

But since October 28, Cubans can have national accounts in dollars to buy including household appliances, at competitive prices, in-state stores.

It is a question for the Cuban state of obtaining currencies, essential for its international financial operations, made always more complicated because of the embargo of the United States, in force since 1962.

2. No more CUC in duty-free

The government has prohibited travelers from entering and leaving CUC. At Havana International Airport duty-free, only UPCs and foreign currencies are accepted.

“It is to avoid supplying a CUC foreign exchange market outside Cuba,” explains Cuban economist Pavel Vidal, of Javeriana University in Colombia.

3. Increase in wages and change in CUP

In July, the average salary of state employees rose from 667 to 1,067 CUP in non-productive enterprises and services.

In Havana, some supermarkets that accept CUCs and CUPs started in December only to give change in CUPs.

“It was decided to launch the experiment, among the monetary ordering measures that the country is carrying out,” said the state daily Granma.

4. Pay in dollars

“Please note that we now also accept payments in foreign currency,” said an international educational institution in Havana in its latest weekly newsletter.

Several private companies selling food or importing products are already being paid in dollars or euros.

Faced with the demand for foreign currency, on the parallel market, 1.14 CUC is exchanged for a dollar, against 0.97 for a dollar a few months ago.

“The recognition of the devaluation of the CUC began with the approval of purchases in convertible currency (…) to avoid the flight of dollars to the outside. For this, people exchange the CUC for convertible currencies”, emphasizes Cuban economist Omar Everleny Pérez.

5. Outstanding: the prime rate

The greatest difficulty of this monetary unification should be the elimination of the preferential exchange rate from which Cuban public enterprises benefit, namely a CUP for a dollar (and not 24 CUP against a dollar as on the foreign exchange market).

This preferential rate allows the state economic sector to pay for services and to import subsidized, but this causes distortions in the economy.

If abolished, imports will cost more and higher prices will affect consumers, while Cuba imports the majority of the food.

“Eliminating monetary duality does not solve the problem, if it is not accompanied by a devaluation of the exchange rate with which the country’s businesses operate (…) and a productive reform to avoid an inflationary crisis, because of the increase in prices and the lack of certain products, “said Mr. Everleny Pérez.