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The Sunshine Economy

The Sunshine Economy: Cuban Currency Unification

Cuban Convertible Peso.jpeg
Tom Hudson
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Cuban began phasing out the Cuban Convertible Peso, the CUC, on Jan. 1, 2021. It brings an end to the dual currency system on the island that has been in place since the 1990s. The change is expected to stoke inflation even as the country's economy is reeling from American restrictions and the pandemic-induced collapse of tourism.

After more than 25 years, Cuba is doing away with its dual currency system and getting rid of the Cuban Convertible Peso. What does the change mean for Cubans and for Cuban-Americans trying to help family and friends on the island?

It is a unique and bewildering construct of the Cuban economy — two currencies with two different values. The dual currencies have come to define Cuba as much as the island’s communist political system and state-run economic system have.

Now, after more than a quarter of a century, Cuba’s getting rid of its two-money market and unifying its currencies into a single monetary unit: the peso.

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The change is expected to bring skyrocketing inflation even as the island’s economy is in tatters because of COVID-19 and Trump-era economic restrictions on Americans doing business with, and sending money to, Cuba.

It has been confusing and complex trying to deal with two different currencies. Transitioning to one will be difficult for Cubans already dealing with long lines for basic items like food and struggling to pay for basic necessities like electricity.

And it will almost certainly add to the strain of Cuban-Americans in South Florida whose economic aid helps relatives survive back in Cuba.

"ATMs used to render bills of five, 10 and 20 pesos," said Kariel Gonzalez from Havana. "And now they're delivering 100 pesos, 200 pesos."

It is just one concrete sign of how Cuba's currency is changing since "Day Zero." That's what the communist government called Jan. 1, 2021 as it began what it said would be a six-month process of eliminating the Cuban Convertible Peso, the CUC, from the economy. The CUP, Cuban peso, remains.

The government's official exchange rate was set at 24 CUP to the U.S. dollar, but the street exchange level already has dropped according to several people on the island.

Ubaldo Huerta said his mom in Havana sent him a WhatsApp message last week that a restaurant she went to listed its menu prices at "an exchange rate of $1 for 30 CUPs." Huerta grew up in Cuba, but lives in Barcelona.

Gonzalez, a former University of Havana accounting professor, said the tab for a couple of beers and appetizers for he and his wife came to 900 CUP.

"I looked at my wife and I said, 'Wow, this is something strange for us because it is a check for 900 pesos,'" Gonzalez said.

That’s about $40. It wasn’t the amount, it was the denomination of the bills that gave Gonzalez a surprise.

The government calls it the “Tarea de Ordenamiento,” the Monetary Ordering Project. But the early days don’t seem orderly for most Cubans.

"There are a lot of complaints right now because people are saying, 'Well, you tell me, I can play with both currencies for six months and right now you are telling me no,'" said Havana business owner Marta Deus. "So people are changing their money (at banks) because they need to pay many things."

PATHS AHEAD

Cuban President Miguel Diaz-Canel announced the long-expected unification of the country's two currencies in October, just days after the Central Bank of Cuba denied rumors about it. Government talk of unification goes back at least seven years.

The implosion of the Venezuelan economy over the past several years, tighter restrictions from America, and then the COVID-19 pandemic decimating the tourism industry that underpins Cuba’s economy, finally conspired to force the monetary reckoning.

"I dare to say that this is the beginning of something," said Gonzalez, in Havana. "Let's say for now, the opening of a market economy."

That optimism is more early exaggeration than reality. According to official government forecasts, the Cuban economy shrank by 11% last year — its second straight year of contraction — and its worst performance since the early 1990s when the Soviet Union collapsed.

Cuba was forced into a series of economic reforms then, too, including attempts to attract foreign hard currency. There have been several efforts since to make small changes updating the island’s central planning-style economy; paladares — small family-run restaurants and cuentapropistas — entrepreneurs running their own private companies — have been more tolerated rather than encouraged.

There’s a long record of reform pledges not making it into actual economic practice in Cuba.

"You have to unleash these productivity forces, you have to let all the entrepreneurs do the things, you have to make things easy for private businesses," Gonzalez said.

By his reading "between the lines" of speeches by top government officials "there's an implicit acknowledgement that [the economic system] used to work. It doesn't work anymore."

Not surprisingly, Gonzalez’s hopeful outlook isn’t shared by Cubans on this side of the Florida Straits. Especially not by exile economist Emilio Morales, who heads the Havana Consulting Group in Miami.

The currency unification could spell an end to the nascent entrepreneurial class in Cuba through skyrocketing inflation and over-regulation, or it could be the end of the island's failed economic system, according to Morales.

“The perfect Trojan Horse,” Morales called it. “Only this time it’s the Trojans themselves who built the horse, out of their own stupidity, fear and obsession with controlling everything.”

CONVERTING CURRENCY INTO CELL TIME

The pandemic has helped Fonoma's business.

It is a web service that buyers use to pay for cell phone or internet service for someone else in Cuba — called “top-offs” — like topping-off cell phone minutes or internet time. Say someone in Kendall wants to pay for the cell service of a family member or friend in Holguín. They can pay Fonoma in U.S. dollars.

Co-founder Ubaldo Huerta said volume jumped 30% during COVID-19 in March. Staying in touch with families on the island, staying home and improvements to Cuba's cellular service network have helped increase demand.

"And it keeps growing, the volume of top-offs to Cuba," he said.

Fonoma isn't directed affected by the currency change. Buyers outside Cuba pay for the service in U.S. dollars, for instance. Fonoma converts it to Cuban pesos to buy time from ETESCA, the state-owned telecommunications monopoly. But the devaluation means larger dominations in those digital wallets.

Before Day Zero, the average top-off through Fonoma was 20 CUP, according to Huerta, and now it is 500 Cuban pesos.

"The new reality is very confusing for people," he said.

Under the Trump Administration, remittances from the United States to Cuba have been limited to $1,000 dollars every three months and only to family members. Fonoma’s business provides exiles a way to get around those restrictions and augment their financial support of family in Cuba. It is a platform for someone outside Cuba to pay for a specific service for someone on the island — in this case, cell or internet service.

Fonoma co-founder Hiram Centelles said the devaluation has led to demand for U.S. dollars from Cubans with family members abroad.

"If they can get the U.S. dollar from the relative in the US, that remittance has more value now, at least that what they perceive, and in the moment where they most is most needed," Centelles said.

In a journalism career covering news from high global finance to neighborhood infrastructure, Tom Hudson is the Vice President of News and Special Correspondent for WLRN. He hosts and produces the Sunshine Economy and anchors the Florida Roundup in addition to leading the organization's news engagement strategy.
Tim Padgett is the Americas editor for Miami NPR affiliate WLRN, covering Latin America, the Caribbean and their key relationship with South Florida.