Cuba Eliminates Dual-Peso System for Single Currency
By: Frehiwote Negash –
News of the Obama administration and the Cuban government restoring diplomatic ties marks the end of the 50 year standoff between the two countries and the beginning of normalized relations. In the last half century, relations between both countries have been almost non-existent dating back to the Cuban Missile Crisis. President Obama’s willingness to re-establish ties with Cuba was facilitated by the presence of President Raul Castro as leader in place of his brother, Fidel. Raul, the more progressive of the two leaders, promised reforms to the country’s 11 million citizens by opening Cuba’s doors to global investment. It marks a major shift in American foreign policy; one which embraces cooperation in light of its failed foreign policy on Cuba.
The policy is two-fold in its purpose. The ultimate goal of the US embargo was to weaken the Castro government and force regime change. In this respect, it has failed miserably. The policy’s continued support was fuelled in large part by Cuban nationals and Republicans in Florida; a state which remains an electoral battlefield. The embargo has only served to solidify communist rule in Cuba by further isolating the country. On the flip side, the policy has succeeded in decimating the Cuban economy. The embargo has cost Cuba an estimated US$1 trillion since its enforcement with President Castro demanding compensation for damages as a result of the policy. The détente does not mean that Cuba will fargo its socialist principles by embracing capitalism , but rather proceed within the current system. One major indication of these changes is the elimination of Cuba’s dual –peso system in favour for a single currency.
In order seek foreign investment and facilitate trade, Cuba has to scrap its convoluted dual-peso system which has been in operation since 1993. The system was enforced after the collapse of the Soviet Union. Without Soviet subsidies, Cuba’s GDP dropped a whopping 35{92d3d6fd85a76c012ea375328005e518e768e12ace6b1722b71965c2a02ea7ce} forcing Castro to recognize the American dollar in 1993 as a means of exchange if only to get hard cash in its coffers.
Visitors to Cuba are given convertible pesos also known as the CUCs. One CUC is equivalent one US dollar. However, Cuban citizens are paid in local pesos or CUPs, which have an exchange rate of .25 to the dollar. The system is designed to force tourists to pay a premium on items and uses the proceeds to finance necessities for its citizens. Ironically, the system has created inequality among Cubans who have access to CUCs over CUPs; an imbalance that echoes the inherent problems of capitalism. The danger with eliminating the CUP is that millions of Cubans could lose their life savings as a result of the transition.
The thawing of US-Cuban relations will accelerate the move to a single currency as Cuba prepares for the global market. The deteriorating economic situation in Venezuela, Cuba’s biggest ally in South America has forced its hand in search for new economic partners. However, it remains to be seen how the Republican dominated US congress will proceed on the embargo matter. Until then, it is in Cuba’s best interest to seek new trade partners and opportunities.
Source: Reuters Canada, Socialist Alternative, Yahoo News, Live Trading News, Vice Magazine