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Cuba’s Two Class Currency: A Failed Remedy

Cuba’s Two Class Currency: A Failed Remedy


The fall of the Soviet Union marked not only the disappearance of communist Cuba’s primary economic patron, but also the appearance of a whole new set of problems for the island, and consequently, a new set of absurd remedies. One of the best examples of the Cuban Communist Party’s measures to “save” the economy is the island’s dual currency system. And like the rest of its policies, the people hurt the most by it are the Cuban people themselves.

Currently, Cuba operates under two currencies. The first one of these is the Cuban Peso, or CUP. Considered Cuba’s domestic currency, this is the unit in which most people get paid. The second currency is the Cuban Convertible Peso, or CUC. Pegged to the US dollar at a one-to-one conversion rate, it is worth 25 times as much as the CUP. The CUC is usually considered to be the currency for tourists, since all of the products and services sold to them are priced in CUC.

Cuba’s first attempt at a dual currency came in 1994, after its trade agreement with the Eastern Bloc was dissolved. Seeing that the island had become economically isolated, Fidel Castro decided to legalize the possession and use of the US dollar in hopes of entering the world economy and bringing money into Cuba. Ten years later, the CUC was introduced to replace the dollar, which would no longer be legal for commercial transactions. Yet instead of being a solution, this measure only created greater problems for ordinary Cubans.

When the CUC was first introduced, Cubans were not allowed to use it, but recent reforms have allowed it to circulate among normal Cuba citizens. But instead of creating a well-functioning economy, this has only brought chaos—endless searching for the right store, being kicked out of other stores, and special treatment for those with the convertible peso.

Since most Cubans work for the state, they earn in CUP. This means that they are directly affected by the dual currency policy. Most of the goods and services in Cuba are sold in CUC. This makes sense for store owners, since CUCs are worth more. But for those who earn in CUP and have to purchase in CUC, it is a problem. When most people earn the equivalent of around $20 a month in CUP, buying a $3 bag of coffee is a luxury. Not only are the products sold in CUP of poor quality, but as more and more stores switch over to CUC, there are fewer and fewer items that can be bought with the currency (think fruit and second-hand door knobs). Most basic necessities are now sold in CUC. The dual currency has only brought on harder times for the people of Cuba.

Moreover, some Cubans experienced the implementation of the dual currency system as a direct attack. As one of my Cuban interviewees told me, “It was an invention to try to remove the dollar from the hands of the Cuban.” For others the introduction of the CUC goes to explain why the work ethic in Cuba doesn’t exist: “It doesn’t incentivize you to work. When we had American dollars, then we had to work hard to earn money because we could do things with that currency.”

There has been talk of returning to a single currency ever since the dollar was legalized. Raúl Castro himself promised to tackle the issue when he assumed the presidency in 2008. Last year, news sources said that Cuba would eliminate the dual currency system before the next Communist Party Congress this past April. Of course, that didn’t happen. The Party has said that the transition to a single currency will not hurt the holders of either currency. But there is widespread anxiety that hard-won CUCs will suddenly be phased out. In any case, the dual currency system has already caused a lot of damage.

 

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