Cuba dual currency panorama
- Submitted by: Oscar Rojas Curbelo
- Business and Economy
- 10 / 24 / 2014
One of the challenges that Cuba face nowadays is to remove dual currency. If during the first half of the 90s, when the country was plunged into a deep economic depression due to the collapse of the Soviet Union, circulation of two currencies functioned as a useful measure to revive the economy, currently it shows as an obstacle.
Monetary duality refers to coexistence of two currencies in the same economy. It means two currencies are used as means of payment, measure of value (expression of the prices of goods and services sold, debts and registrations of economic values) and as a means of hoarding (bank deposits and cash).
Monetary duality proceeds generally from special economic situations where production system is severely affected. In the case of Cuba it began in the early 1990s when the Island lost its main trading partner and the Government opened a program of integration into the international economic context. Monetary duality is not an exclusively Cuban process. Others economies, like China, have lived that process too.
Despite the serious shortage of foreign exchange and its urgent need, on August 13, 1993 the Cuban Government legalized holding American Dollars for individuals and bank accounts in USD were authorized, one of the most controversial measures of the economy transformation program in its more than 50 years. The Cuban peso did not satisfy the demand of goods and services, so circulation of dollars was essential. Other measures such as openness to foreign investment-employment and incited attract foreign capital.
This phenomenon of partial dollarization of economy caused, provisionally, a dual monetary regime. It was a decision that could not be delayed either from a financial point of view, not from a political point of view. Cuba achieved the desired reorientation and generated significant internal changes. External threats caused the replacement of the Dollar by the Cuban Convertible Peso (CUC) which persists to this day.
Without stability and dollarization there is no justification to maintain two currencies. The dual currency clouds accounting and economic policy at both national and enterprise level, distorts financial measurement and decisions, hides subsidies and taxes that are incorrectly assigned and prevents linkages among firms. Financial decontrol, inefficiency, underdevelopment of the productive forces are other consequences of dual currency that jeopardizes the international credibility of Cuban economy.
The end of dual currency is a slow process that carries an action program to certify its effectiveness. Cuban economists have a mission to design and implement a strategy to ensure a real import substitution: to strengthen production of goods and services, to protect national industry and to enhance national market.
Corruption and fraud will not disappear with dual currency because purchasing power of wages does not change and this is associated to organization, efficiency and labor productivity and not with monetary policy. Recovery of wages requires structural reforms in Cuban economy.
Already more than 20 years that this economic phenomenon lives in Cuba and the more time passes the more it damages our economy. Is it near the end of this phenomenon? Does the country still is unable? The decision exists strategically on Guidelines of the Economic and Social Policy, but we do not know how strategic it is.