Cuba why two currencies

With the pandemic raging and a global recession just beginning, unification of the national peso and the convertible peso may alarm Cubans. In January , Donald Trump became the twelfth president of the United States to leave office without accomplishing regime change in Cuba, though it was not for want of trying. Even in the context of the pandemic, the pressure on Cuba intensified; Washington imposed suffocating sanctions while the Miami-based opposition promoted political instability and civil strife.

In a final act of spite, on 12 January , the Trump administration restored Cuba to the US list of state sponsors of terrorism, a move designed to obstruct any efforts by the new Biden administration to improve relations with the island. Measures to tackle the COVID pandemic have demanded additional resources, while the economy was shut down and tourism revenues plummeted as borders were closed.

Poor agricultural production and the pandemic have exacerbated scarcity. Cuba needs hard currency to purchase on the international market; over half the food, fuel, medicines, and other vital resources consumed on the island are imported, hence the unfilled shelves and long queues. This scenario both complicated and lent urgency to the process of monetary ordering.

Possession of the dollar had been prohibited since Legalisation transferred the benefits of using dollars from individuals to the state, so that everyone could benefit. It was also a necessary component of opening up the tourism industry, which operated in dollars. Furthermore, with so many Cubans having relatives in the United States, the inflow from remittances could bolster the ailing economy.

However, remittances also exacerbated historically rooted racial and class inequalities, as most recipients were white and better off; their relatives had often left in earlier, politically motivated waves of emigration and were well-established in the US or Europe, with adequate resources to send money back to Cuba.

US dollar transactions were permitted in the domestic economy and for personal use. This was problematic because it obscured losses and surpluses from their accounts, and removed incentives to increase exports. The dual currency divided the economy into two parts.

Which branch any Cuban operated within depended on whether their income was exclusively from a state salary paid in CUP, or if they had access to dollars or CUC. Many Cubans had a foot in each sector. However, it also entrenched inequality and broke the link between work and remuneration. Incomes no longer reflected skill levels, nor the quantity or quality of formal work.

Those with access to dollars could buy subsidised peso goods for a fraction of their market price and consume additional goods from dollar shops. Those dependent on peso incomes could not afford non-subsidised markets. State workers, including the most highly skilled, earned the lowest incomes.

It is just one concrete sign of how Cuba's currency is changing since "Day Zero. The CUP, Cuban peso, remains. The government's official exchange rate was set at 24 CUP to the U. Gonzalez, a former University of Havana accounting professor, said the tab for a couple of beers and appetizers for he and his wife came to CUP. Cuban President Miguel Diaz-Canel announced the long-expected unification of the country's two currencies in October, just days after the Central Bank of Cuba denied rumors about it.

Government talk of unification goes back at least seven years. That optimism is more early exaggeration than reality. Cuba was forced into a series of economic reforms then, too, including attempts to attract foreign hard currency.

By his reading "between the lines" of speeches by top government officials "there's an implicit acknowledgement that [the economic system] used to work. So is Cuba also using the US dollar now? Are they worth the same thing? So what happens to all those convertible pesos floating around? What is the Cuban government doing? More from Economy. China-US declaration on climate only first step, analysts say. Local economists and foreign analysts say the crisis is forcing the government to move more quickly with reforms promised nearly a decade ago, such as elimination of the dual currency system.

Business News Updated. By Marc Frank 3 Min Read.