Saturday, October 31, 2015

Monetary Unification in Cuba, an Unresolved Issue

Monetary Unification in Cuba, an Unresolved Issue / Jeovany Jimenez Vega
Posted on October 29, 2015

Jeovany Jimenez Vega, 26 October 2015 — Without a doubt the most complex
challenge Raúl Castro's regime has in the short-term is monetary
unification. The use in the country of two national currencies for the
last two and a half decades has ended up generating an inestimable
distortion in the internal finance system, which by itself would be
enough to illustrate the chaos reigning in the economy, of which this is
a sharp reflection.

The recent declaration of U.S. Senator Rodney Davis on the imminence of
change awakened expectations on the subject, which has been strikingly
absent in the speeches of the General/President and in the official
Cuban press, in spite of the fact that its persistence converted it some
time ago into something unique. If several contemporaneous countries
once permitted the indistinct circulation of a foreign currency together
with their own, I don't remember one that used two national currencies
together, like Cuba has done since the '90s: to wit, the Cuban peso, the
CUP — so withered, humble, poor — and the CUC, the all-powerful Cuban
"convertible" peso*.

For more than two decades, 90 percent of Cubans have received their
monthly "salary" in CUP, and when they shop in the "dollar" stores, they
have to pay in CUC, at a rate of 25CUP/1CUC. This is the biggest scam
suffered by our people since the arrival of Columbus. In the previous
period, before the arrival of the CUC at the beginning of the '90s,
there had already been quaint situations, since during the better part
of that phase Fidel Castro made the simple holding of foreign currency –
above all the American dollar — into an authentic body of crimes
reflected by all the letters in the penal code, and hundreds of Cubans
suffered in prison.

But it's worth little to dig up the past; today we need to turn over a
new leaf and write a new chapter. Like neophytes, we don't really hear
the intimate ins and outs of the economy, habitually plagued by obscure
nuances that we can't guess. But it's worth it anyway to ask concrete
questions about the unification of Cuban currencies. One indispensable
step would be to demand, starting now, every opportunity sighted on our

Today every proposal stipulates, as a prior condition, the coherence of
its financial system, since nothing else would earn the essential
credibility that international organizations and investors need. So,
since everyone is aware of this, why delay one more day with the
inevitable change? But this is where you would have to stop to avoid
this necessary step from ending badly and generating disastrous social
consequences in the short-term.

But all this supposes that the Cuban Government — the one definitively
responsible for having generated and maintained such an unusual policy —
assumes responsibility for the complete process in a way that mitigates
potential harm; and that it will happen in the least abrupt way
possible, without generating or minimizing possibly traumatic
consequences for the already-poor Cuban people.

I'm speaking concretely. I wonder if, instead of having an abrupt change
of currency right now, it wouldn't perhaps be possible to gradually
reevaluate the weaker money, through a programmed process and with
public knowledge — let's say lowering the exchange rate of the CUC in
the CADECA (the official exchange bureau) at a rhythm of 1 to 2 CUP
monthly — so that at the moment of exchange the rate would be less
pronounced than now, let's say 10 to 1, for example.

Another element to take into account is the time it would take for the
population to complete the change, meanwhile guaranteeing the
possibility of exchanging all the cash circulating without the
Government interposing senseless obstacles. Those in the old guard
remember the untimely way in which this process was carried out at the
beginning of the '60s, and all the absurd limitations imposed at that
time, which caused a considerable part of the money in circulation to
simply became void.

Right now there can't be any justification for the Cuban Government to
appear arbitrary. In its place, a period of some months should be
available to complete the change, during which both currencies would
continue to circulate at the fixed rate until the one destined to
disappear remains only a numismatic memory. After all, as any
grandfather will tell you, he who hopes for much can wait a little, and
something that has harmed us for so many years can't be reversed in a
few days.

On this point I'm beginning from the supposition that the currency that
will disappear will be the CUC. The untimely presence of this spawn,
"convertible," paradoxically, only inside Cuba, together with the Cuban
peso, would be something senseless and counter-productive in a Cuba that
is open to the world. No sane person would consider retiring the CUP
from circulation in place of the CUC. To do this suddenly, after
fomenting rumors during the last two years about the presumed permanence
of the CUP, which is still being exchanged for CUC in the street, would
be a miserably low blow.

Of course, for everything to succeed, or to put it another way, to be
something that doesn't imply huge domestic trauma, the political
goodwill of the elite Cuban Government would be necessary: something
that up to now hasn't exactly been celebrated. If it is economically
coherent, it should free up productive and commercial openings, which
would foster an immediate circulation of goods and services generated by
wealth, all of which would be possible in the short-term — an effort
which, although at the beginning wouldn't be achieved on a large-scale
or with all the urgency that circumstances demand, would be oriented,
without doubt, in the right direction, and would then be a comforting
first step in support of the stability of a future single currency.

Then in the short and mid-term, the positive result could be felt, but
only if the Government accedes to immediately freeing up the management
of the private sector of society and stops putting unreasonable
obstacles in the way of every private initiative. This would be, in my
humble and novice opinion, a variant to take into account. Studying to
see if this would be something practical and attainable now is a job for
the experts; it is only one more proposition.

*Translator's note: The Cuban "convertible" peso is not actually
"convertible" anywhere but inside Cuba. The exchange rate on the US
dollar is nominally 1:1, but a 10% "surcharge" is applied,
distorting the exchange rate. Exchanges with other foreign currencies —
for example the Canadian dollar or the euro — are not taxed.

Translated by Regina Anavy

Source: Monetary Unification in Cuba, an Unresolved Issue / Jeovany
Jimenez Vega | Translating Cuba -

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