Cubans fret as government prepares currency unification
HAVANA, (Reuters) – Cuba is laying plans to move to a single currency, a reform that many feel is one of the toughest challenges facing President Raul Castro as he tries to kick-start the Communist country’s moribund economy.
For years Cuba has had two currencies — the peso (CUP), in which most wages are paid and local goods priced, and the convertible peso (CUC), used in tourism, foreign trade and some stores carrying imported goods.
The peso, says the government, will remain and the CUC will become history.
Economists applaud the government plan, but secrecy over the all-important details of how and when the change will come is causing some anxiety in the country.
News this month that state companies were ordered to prepare for unification and that personnel are being trained for what the government dubs “Day Zero” has added to the worry.
Cuba is a country where almost the entire economy is in state hands and most prices fixed. Companies must exchange convertible currency and CUCs, pegged to the dollar, with the government at the official exchange rate of one peso, while the CUC has been valued for years at 24 pesos by state-run exchange offices.
Which currency to hold on to, if any, has become the talk of the town.
“Since I have no idea what is going on I have decided to spread my money among many currencies, like the dollar and euro,” Raul, who runs a Havana restaurant, said, refusing to give his last name as by law he can only accept local currency.
“The clients pay with whatever money they have, and I work out the exchange rate,” Raul said with a laugh as he stood at the door of his Havana business.
Foreign and domestic economists are unanimous that the current monetary system and fixed exchange rates mask inefficiencies, make accounting difficult and undermine other reforms.
But they also believe unifying the currencies is perhaps the most difficult and socially disruptive of a series of market-oriented reforms.
“The elimination of the dual currency, which is based on a devaluation, means there will be an initial shock … There won’t be initial benefits but short-term costs (inflation) and benefits in the mid-term,” Pavel Vidal, a former Cuban central bank official now at Javeriana University in Cali, Colombia, said in an e-mail interview.
TRUSTING THE DOLLAR
Manuel Hernandez, a 67-year-old Havana resident who repairs gold and silver jewelry, said he trusted the dollar more than either Cuban currency.
“Now I’m holding dollars, which go up and down, but leave me more at ease and can be used outside Cuba,” he said.
Raul Picard, a member of a peasant livestock cooperative on the outskirts of Havana, said he planned to keep his money in pesos but believed the best bet was to invest in new technology and supplies until the currencies are unified.
The experts admit they are not sure how the government will proceed, nor how it will keep Castro’s promise not to create further hardship for Cuba’s 11.2 million inhabitants who worry that the little money they have will be devalued directly or through inflation when unification occurs.
Vidal believes the process of unification has begun with the devaluation of the official one peso to the dollar or CUC exchange rate. He says the government is currently testing a 900 percent devaluation with a number of companies, trading on average 10 pesos for a CUC or dollar.
“From what I can tell, the disappearance of the CUC will come quickly for the companies this year. I don’t know about the population, but I think not as it would create too much uncertainty,” he said.
Some Cubans aren’t taking any chances and are cashing in CUCs at the 24 peso rate now, questioning Castro’s promise to make good on its value when “Day Zero” arrives.
Omar Lavira, owner of a sandwich store in Old Havana, was still showing prices in CUC and pesos.
“Many people are going to convert their money into dollars and euros because they will always be around,” he said. “In my case I’m keeping it in local currency.”