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Cuba Will Scrap Its Onerous Two-Currency System On New Year's Day

CubaCurrency.jpg
Ramon Espinosa
/
AP
A Cuban vendor displays the island's two currencies, the peso and convertible peso, at her stall in Havana.

For more than 25 years Cuba has used dual currencies to keep its ailing economy afloat. It doesn't work anymore — but will the change to a single currency solve the issue?

Thursday night, Cuban President Miguel Díaz-Canel said his government will unify the communist island's two currencies on Jan. 1.

Since the 1990s, Cuba has had the peso — used mostly for locals — and the convertible peso, or CUC, on par with the U.S. dollar — mostly for foreign transactions and tourism.

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That arrangement was meant to preserve monetary stability after the collapse of Cuba’s chief financial patron, the Soviet Union. But over time it’s created economic distortions — and gross economic inequality for those who can't access CUCs.

Those problems have held back Cuba’s economic growth — a situation that's untenable now with a spiraling financial crisis and tighter U.S. sanctions.

So, effective New Year’s Day, Cuba will revert to just one currency — the peso — whose value is 24 to one U.S. dollar.

Díaz-Canel said the move "will put the country in a better position to carry out [economic] transformations," but added it will hardly be "a magical solution."

In fact, in the short run, it might cause more pain. Adopting the peso as the sole coin will effectively mean a currency devaluation resulting in higher inflation and less purchasing power for already struggling Cubans.

Díaz-Canel said his government will soften the blow by raising Cubans’ salaries, but that’s merely a stopgap. Economists insist Cuba’s centralized economy urgently needs more private enterprise and foreign investment among the "transformations" Díaz-Canel refers to.

This week, Cuba did say it will allow foreign majority ownership of some businesses.