Cuba to Eliminate Dual Currency System

Cuba Dual Economy

The planned elimination of Cuba’s unusual dual-currency system will likely mean printing more of the single currency that remains, explains the country’s Central Bank President Ernesto Medina. Elimination of the double currency was announced last year, although no date has been set for the monetary unification. See excerpts of an article by Andrea Rodríguez and Michael Weissenstein (Associated Press) here:

Cubans have been watching closely for clues as to how the government will avoid high inflation, a danger for a weak economy where many citizens struggle to pay for daily purchases despite the widespread subsidization of services like housing and health care.

Most Cubans earn and buy goods in local pesos worth about 4 U.S. cents apiece. Tourism, one of the island’s main sources of foreign exchange, operates on the convertible peso, a special currency worth roughly one U.S. dollar.

The double currency allows Cuba to theoretically split the country between a realm of highly subsidized prices in Cuban pesos and a tourist economy where prices more closely resemble those of U.S. or European cities. But the system has inadvertently created a new class of privileged Cubans with access to convertible pesos. And it has led to economic distortions like a special exchange rate for state enterprises that effectively subsidizes them with cheap convertible pesos.

Central Bank President Ernesto Medina told the state National Information Agency that authorities were studying unspecified indicators “that offer clues about whether the existing money supply in the general population and the business system is correct or not.”

The agency described him as saying it was logical to assume that making Cuban pesos the sole national currency will require increasing the amount of money in circulation and that officials are studying the possibility of printing banknotes of higher value than those currently available. Today’s biggest Cuban peso bill, the 100, is worth about four U.S. dollars.

Printing more money could simply mean replacing the convertible peso supply with the equivalent value in Cuban pesos, said Pavel Vidal, a Cuban economist and professor at the Universidad Javeriana in Cali, Colombia. But if Cuba adds too many Cuban pesos to the system, there is a real risk of inflation, experts said. [. . .]

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