Cuba Ends its Double Currency System

After 19 years of sustained use, the unpopular dual currency system of Cuba finally sees its end Tuesday. The convertible peso bills have been a big factor in the widening of the gap between the rich and the poor as only the privileged groups usually have easy access to this currency.

Limited Currency Access

Cubans working in the tourist business and those receiving remittances from family members working overseas were the ones mostly benefited by the convertible currency set up. Cuba receives some $2.5 billion annually in remittances coming from abroad. Money coming in through tourism trade and overseas remittances are received at one for one exchange rate. Workers’ salaries are however paid in regular peso rate at a convertible value of 24 against one peso. This currency practice will be phased out soon according to the country’s financial department.

Basic commodities

With the traditional currency system, basic commodities in Cuba are generally made available only through the convertible peso. This is the common source of conflict between the few who have access and those who do not have the means since these necessities can be obtained only in designated government stores. Cuba’s dual currency system took effect in 1994 and was one of the main issues that the sixth Communist Party Congress in April 2011 brought out.

Second currency

The collapse of the Soviet Union gave rise to the use of U.S. dollar as a second currency in Cuba. Under this setup, one convertible peso is valued at one dollar while the Cuban peso is pegged at only four cents. The discrepancy is felt heavily with the limited availability of certain goods that can only be purchased through the convertible peso in certain state outlets. Meantime both convertible and Cuban pesos are not honored outside Cuba. Workers paid in ordinary Cuban currency complain that their money is not accepted in stores carrying imported items. These goods are very much in demand among Cubans.

Phase out and unification

Although a directive on the phase out of the convertible peso has been released, the Cuban government has announced that there is a need to undergo a transition process. A timetable will be followed during the transition period. According to the Cuban Communist Party newspaper, the Cuban council is looking into the feasibility of unification, although it says this may not be the ultimate solution to the economy problem. The restoration of the value of the Cuban peso is important and needs time and priority because there is no quick remedy to the issue.

Impact on economy

The economic implication of the currency change in Cuba is set to have a positive effect. Once the people are ready to use the new currency system, the gap between the haves and have-nots will hopefully narrow down. Cuban officials however warn that it will not be easy in the beginning, as the government works on moving away from centralized economy. Cubans will be given enough time to convert their money to the new system before the new currency structure is fully implemented. In the meantime that the switch is in progress, the Cuban council of ministries said they would support both currencies until monetary unification is eventually reached.