10/22/13 - Reuters - Cuba moves towards ditching twotier currency
By Marc Frank
HAVANA | Tue Oct 22, 2013 12:46pm EDT
HAVANA (Reuters) - Cuba took the first step towards scrapping its two-tier
currency on Tuesday in a move which could boost local workers' income and
remove a major hurdle for importers and exporters.
The government said it had approved a plan to gradually eliminate the dual
monetary system which has been in place for the last two decades, part of
reforms aimed at improving the Soviet-style economy's performance.
"(Unification) is imperative to guarantee the reestablishment of the Cuban
peso's value and its role as money, that is as a unit of accounting, means
of payment and savings," a government communique carried by official media
Cuba's convertible peso (CUC) is pegged to the U.S. dollar, while the
local peso (CUP) is valued at a fraction of the greenback's value,
angering the population which is paid in the latter, and complicating
accounting, the evaluation of performance, and trade for state companies.
Most wages and local goods are priced in CUP while the dollar-pegged CUC
is used in the tourism industry, foreign trade and upscale eateries and
stores carrying imported goods. Neither are legal tender outside Cuba.
In a country where almost the entire economy is in state hands and prices
are fixed, companies must exchange dollars and CUCs with the government at
the official one-to-one exchange rate, while the CUC is valued at 25 pesos
at exchange offices.
The unification of the two currencies is expected to be a gradual process
that will take up to 18 months, according to Cuban economists, and will
involve devaluing the CUC and perhaps revaluing the peso somewhat.
Juan Triana, an economist at Havana University's Center for Cuban Economic
Studies, applauded the move but said more details were needed on the new
official exchange rate.
"This will eliminate the crazy situation today where a company is
profitable in dollars and runs at a loss in pesos, and may allow these
companies to improve their workers' wages," he said.
The official communique said the government would make good on the value
of the CUC by announcing any devaluation and giving people time to convert
President Raul Castro's government has already begun a series of pilot
projects aimed at increasing demand for pesos versus CUC and thus the
peso's value. They include pricing more goods and services in pesos and
collecting taxes in pesos. Next year's budget deficit will be financed in
part through a bond issue, instead of printing more currency.
At the same time it has been experimenting with the official one-to-one
exchange rate with state companies to bolster efforts to improve the trade
balance and pay workers in key sectors more.
For example, in the sugar industry, 1 million dollars in exports can now
be exchanged for 12 million in pesos, instead of 1 million, and some of
that money used to improve wages and the payments farmers receive for
But at the same time, the sugar industry must now pay 7 pesos for a dollar
of imports, instead of 1 peso.
The government statement said these measures would become more generalized
in the coming months, as would the purchase of CUC-priced goods in pesos
at the 25-peso CUC exchange rate.
"The main changes in this first phase will be in the business sector to
foster conditions that will lead to increased efficiency, better
measurement of performance and the stimulation of sectors that produce
goods and services for export and the substitution of imports," the
Phil Peters, director of the Washington D.C.-based Cuba Research Center,
said the devil would be in the details, which were not contained in
"But in the end, the Cuban economy will benefit by ending a strange
monetary system that creates two tiers of income for individuals, and
makes imports appear cheap for businesses," he said.
(Reporting by Marc Frank; Editing by David Brunnstrom and Krista Hughes)
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