Dual currency at death’s door

One of the much awaited but most complex measures in the process of economic transformations.

The authorities announced the start of a timeline of measures to leave a single currency in circulation in the Cuban economy.

The news, or better said, the note published in the daily Granma created a stir in the national scenario and even the foreign media that follow Cuba’s current events. The government of Raúl Castro announced on October 22 that it had agreed “to put into force the timeline of the measures that will lead to currency and exchange rate unification.”

The dual currency resorted to by the Cuban economy in 1993 as its salvation, is giving rise to very diverse controversies, depending on the scenario where it is generated, be it enterprises, banks, academia economists or simple consumers. The effects and interpretations, actually, are not the same for all of them.

But all of them, especially the run-of-the-mill citizen, set in motion their calculators, despite the fact that the official note did not say much, after announcing that “the process of currency unification will begin.” The goals or intermediate balance points the country’s economic authorities would seek between the official exchange rate – for decades set at 1 dollar or 1 convertible peso (CUC) x 1 Cuban peso (CUP), considered untenable by economists – and the rate of the exchange houses (CADECAs) to which the population has access – 1 CUC x 25 CUP – remained in the dark.

However, the note did clearly establish that “the principal exchange rates in this first stage will take place in the sector of juridical persons.” That is, the demanded elimination of the dual currency and exchange rate is setting its sight first on the business sector, with an explicit aim: “to favour the conditions for increasing efficiency, improving the measurement of economic facts and encouraging sectors that produce goods and services for export and the substitution of imports.”

The economists and experts who were interviewed after the news came out were of that opinion. Dr. Joaquín Infante, National Prize for Economy, said to the newspaper Juventud Rebelde that “a reasonable valuation of our currency, the peso, in relation to foreign currencies” will have as effects “a more precise measurement of the value of our production of goods and services.”

“The major benefit for the country’s economy,” he said, “will be that the currency and exchange rate unification will make it possible to measure with greater objectivity all the macroeconomic indicators, like the Gross Domestic Product, National Income, the Balance of Payment indicators, the Economic Plan and the State Budget.”

Another economist who has most studied the matter, Pavel Vidal, anticipated the greater benefit of measures for the business sector than for the common consumer. The enterprises, he said in a study published in 2007, have come face to face with a situation of dual currency that “stands out for the impossibility for juridical persons to exchange Cuban pesos for other currencies and for the overvaluation of the official exchange rate of the Cuban peso.”

Like other experts, Vidal considered that the overvaluation of the Cuban peso in the official exchange rate (1×1) discourages exports and the search for income in hard currency that Cuba needs so much.

Undoubtedly, businesspeople will be able “to use the state of finances as a real instrument of management,” Infante said in turn, “without having to be carrying out operations outside the books to know the value of their productions, their profits and competitiveness.”

Because of the complexity of the process, the measure will take much longer when adjusting the exchange rates than what the population feared at first, with more passion than the enterprise executives. This fear, perhaps partly fuelled by the note’s obscurity, contradicts the notification that the first stage will point to preparing the conditions for drawing up “the proposals for juridical norms, the designs of the changes in the computer systems responsible for the accounting registrations and the adjustments in the accounting regulations.” In short, a process that takes time.

After insisting that the government will be faithful to the previous currency practice – no measures will be taken to the detriment of persons with legal incomes in CUC and CUP, it said -, the official note anticipates tests that would be a very limited preview of the end of the dual currency that today governs Cuban retail trade, divided between shops and markets that in some cases operate in CUC and in others in CUP.

“Cash payments for the equivalent calculated according to the CADECA exchange rate of 25 CUP for 1 CUC will be able to be made experimentally in selected places.” For the time being, tests of this type would have little effectiveness, beyond simplifying the usual procedures of consumers, who have to resort to the CADECAs when they have money in Cuban pesos but need to face payments in its convertible counterpart.

Independently of the stir and dilemma it created because of the scarce concrete information, the note has become another commitment and sign that the end of one of problems having the biggest daily impact on usual financial transactions of Cuban enterprises and citizens is approaching. (2013)

 

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