Cuba announces move toward currency unification

Posted on Tuesday, 10.22.13

Cuba announces move toward currency unification
BY ANNE-MARIE GARCIA
ASSOCIATED PRESS

HAVANA -- Cuba's government announced Tuesday that it will take the
first small, symbolic step toward eliminating a two-currency system that
has become an uncomfortable manifestation of economic inequality on the
island.

President Raul Castro said this year that the communist government must
scrap the system, in which businesses driven by trade with foreigners
use a currency known as convertible pesos that is pegged to the U.S.
dollar. Most of the rest of Cuba's heavily subsidized communist economy,
meanwhile, uses ordinary pesos worth about 5 cents each that cannot be
directly converted into foreign currencies.

The system was designed to allow Cuba to receive hard currency needed
for international trade from the outside world while insulating the rest
of the communist economy from market influences.

Currently, Cubans who work in businesses that trade with foreigners
generally receive higher earnings paid in convertible pesos and use that
currency to acquire goods from stores and other establishments that only
accept that money.

Those goods are more difficult to buy for many government employees who
earn lower salaries in less valuable regular pesos, although a growing
proportion of them have been receiving additional performance incentives
in convertible pesos.

The government did not specify which currency it planned to get rid of.

But the official newspaper Granma said that the government's first step
would be to allow several businesses that currently accept only
convertible pesos, known by their Spanish acronym as CUC, to do business
in ordinary Cuban pesos, or CUP.

The official exchange rate of 24 ordinary pesos to the dollar will
remain in effect, Granma said, meaning the goods themselves will remain
out of reach for Cubans without access to the foreigner exchange-driven
economy, which includes millions of dollars a year in remittances from
relatives in the United States and other countries.

"Experimentally, in select locations, cash payments in CUP will be
allowed to take place," the paper wrote.

The double monetary system was established in 1994 amid an economic
crisis sparked by the fall of the Soviet Union, which heavily subsidized
Cuba for decades.

Cuba has said virtually nothing about how it will adjust the two
currencies' exchange rates to prevent economic shocks. Granma assured
readers that "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 would continue.

Employees of a Havana bank that deals mostly with convertible pesos told
The Associated Press Tuesday that they had recently received training in
how to conduct more transactions with ordinary pesos, although they had
not been told when they would put that training into effect.

Cubans on the streets of the capital said they welcomed the government
announcement but saw it as a slow and incremental move toward broader
change.

"For the moment I don't see any great changes. It'll take a while for us
to end up with a single currency," said state worker Manolo Rivera, 49.
"They are taking a first step toward establishing and formalizing it."

Correspondents Andrea Rodriguez and Michael Weissenstein contributed to
this report.

Source: "HAVANA: Cuba announces move toward currency unification - Cuba
- MiamiHerald.com" -
http://www.miamiherald.com/2013/10/22/3704186/cuba-announces-start-of-currency.html