D.he Cuban government is giving up the two-currency system and the complicated exchange rules. In economic terms, the decision corresponds to a sharp devaluation of the Cuban currency, which will have profound consequences for the island nation’s economy.
President Miguel Diaz-Canel announced the decision in an address to the nation. The regime is responding to the country’s worst economic crisis since the fall of the Soviet Union, which was triggered by the pandemic and is being exacerbated by Washington’s sanctions.
Diaz-Canel announced that the peso would be pegged to the American dollar at a ratio of 24 to one. For almost 30 years, Cubans had got used to two currencies: the unpopular peso and the more affluent CUC, which was roughly equivalent to one dollar. Ordinary citizens were paid in pesos unless they were given access to the CUC in the informal sector or in tourism.
Citizens, joint ventures and private companies had to raise 24 pesos to get a CUC. State-owned companies, on the other hand, had the right to exchange their pesos at an exchange ratio of one for one. The CUC is no longer applicable. The party dictatorship is expecting strong inflation: it responded by announcing that it would significantly raise wages in state-owned companies and pensions. However, around two out of seven million employees work as self-employed or in the informal sector. How they react to the expected price hikes is unclear.
Penalties for price increases
Diaz-Canel promised no one would be left behind. Companies that attempted to impose inappropriate price increases would face penalties. The currency reform is only one part of a larger economic reform which, among other things, provides for the removal of subsidies for various state-owned companies. They would get a year to fix their books. Education and health remain free for Cubans, food is subsidized further.
Cuba’s government opened stores last year where you can only pay in dollars. This is why many Cubans suspect that the island nation will in fact remain a multi-currency economy. The state authorities had justified the stores with the need to get foreign currency.