Cuba Currency Unification Could Be Ready In 3 Years- And Then What?


“Currency unification isn’t a measure that will resolve on its own the economy’s current problems. But its adoption is vital to restoring value to the Cuban peso,” assesses the official text. For months, Cuban officials have said ending the two-currency system, adopted in 1993 after the fall of the Soviet Union, was a priority. But the move, they’ve warned, would have a major impact on the government’s gradual attempts to move from a centralized, communist-style economy.

That is why experts have rapidly raised their concern: change will require time and it will not come without risk. Unifying the currency is probably the most sensitive subject that Cuban lawmakers are to face in the economic sector in the coming years.

“Shifting to a single currency cannot turn into a sort of ‘shock therapy’ if political suicide is to be avoided,” said in a recent essay Emilio Morales from The Havana Consulting Group. “Instead, the process should be carried out in stages, perhaps in carefully orchestrated trimesters. Doing so would allow authorities to assess the single currency impact on the market and to implement corrective measures for a gradual transition to a single currency,” he adds.

Mr Morales gives an estimate timeline: “2014 would, tentatively, be the most reasonable date to conclude the process according to government officials. But this goal seems illusory. At least, Cuba would require three or four years to implement it.”

So far Granma has offered no details nor deadlines, just saying the change will take a gradual process.

At the beginning of this year President Raul Castro advanced of the need of a system reform. Currently businesses driven by trade with foreigners and imported goods use Convertible pesos while the rest of the population earn and spend their salary in Cuban pesos under an official exchange rate of 24 ordinary pesos to the dollar.

As a consequence, many goods remain out of the reach of millions of Cubans as those are only available under an extremely expensive Convertible peso purchase. “Experimentally, in select locations, cash payments in CUP will be allowed to take place,” the paper stated. That means several businesses that currently accept only Convertible pesos will be allowed to do business in ordinary Cuban pesos, which will let more layers of the society flow in. Granma added: “The confidence of people who have maintained their savings in Cuban banks, in CUC, in other international currencies and CUP, will remain intact” and government subsidies of basic goods and services including food staples will continue.

However, unifying the currency will require a lot of still unannounced adjustments on the retail sector. The Havana must clarify to its people and to foreign companies and investors how will the balances of the saving accounts in Convertible pesos as well as in Cuban pesos be affected, or whether accounts in Convertible pesos can be changed into dollars or Cuban pesos.

The same doubts applies to the very active black market, or the checking accounts held by foreign companies on the island. “Will those accounts be frozen?,” The Havana Consulting Group wonders.

Economists, investors and of course Cubans impatiently await the impact of these slow measures on the system, which are to be seen in the next months.

*Image: AFP/Getty Images

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The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.

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