Cuba Does Away with Its Dual Currency System
The start of 2021 has delivered a long-awaited change in Cuba: the end of the country’s dual currency system. In fact, until this year Cuba had three different currencies in circulation: the Cuban peso (CUP), the convertible peso (CUC) and the U.S. dollar (USD).
Here’s what changed on 1 January 2021:
- Cuba removed from circulation the convertible peso (CUC); only the CUP and USD will remain.
- Cubans can exchange their convertible pesos (CUCs) at banks or CADECAs (state-owned foreign exchange offices) through June of this year. After that, the convertible peso will be worthless.
The rise and fall of the Cuban convertible peso tells an interesting story about the island nation’s economy.
Why did Cuba have a dual currency system?
The Cuban peso (CUP) was established as Cuba’s currency by the country’s post-revolution Central Bank. Over time, economic influences complicated the value of the CUP. An embargo by the United States, as well as some of Cuba’s state-run economic policies, made the value of the CUP unstable. Cuba took steps in response to these conditions:
- After the collapse of the Soviet Union 1993, Havana legalized the use of the US dollar within its borders.
- In 1994, the convertible Cuban pesowas introduced as a second form of currency which the island nation hoped would fare better than the Cuban peso, especially when buying imported goods.
Unfortunately, these steps were not enough to stabilize the economy.
Why is Cuba doing away with its dual currency system?
Cuba’s dual currency system has created economic imbalance and disparity.
Over time, there has been an artificial over-valuation of the Cuban peso relative to the U.S. dollar by using the 1-to-1 exchange rate in the public sector, which made imported goods artificially inexpensive compared to domestic products.
Furthermore, Cubans in different social sectors are paid with different currency. State (government) employees are typically paid in CUCs, while those who work in the private sector are paid in CUPs.
In 2013, Raúl Castro announced a series of economic reforms aimed at correcting the relative price structure in Cuba.
- The use of only one [Cuban] currency throughout the economy (starting in 2021).
- Establishing a unified exchange rate for all sectors of the economy, set at 24 Cuban pesos for each USD.
To finetune the currency unification plan, today’s Cuban government has announced it will:
- Publish the exchange rate for the Cuban peso daily, on the Central Bank’s website. This indicates the value could fluctuate rather than remain fixed.
- Raise government employees’ salaries to adjust for inflation.
Time will tell how effective the new plan will be in stabilizing Cuba’s economy and creating greater equality among its citizens.
What will Cuba’s new single currency mean for the island?
Business and Economy News | Al Jazeera | 1 January 2021
Q&A: Economist Ricardo Torres on Cuba’s Monetary Unification
Americas Society/Council of the Americas |11 January 2021
Cuban Convertible Peso