What Purpose Did the Dual Currency System Serve? / 14ymedio, Miriam Celaya

"This commercial site accepts payment in national currency"

“This commercial site accepts payment in national currency”

14ymedio, Havana, Miriam Celaya, 27 August 2014–The information that the Central Bank of Cuba (BCC) published on August 19th in the paper edition of the newspaper Granma about “the next issuance of high denomination bank notes (100, 50 and 20 pesos, CUP) with new security measures” brings back to the forefront the issue of the dual currency and its unification, as announced by the same official press, a change which will take place in the near future.

Security measures that will begin to appear in the above currency issues starting in 2014 consist of the placement of a watermark with each patriot’s image corresponding to each denomination placed in the upper left corner of the front face of such bills. In addition, another watermark will repeat the bill’s denomination on the upper left portion of said image. Meanwhile, lesser denomination bills will continue to carry the watermark with the image of Celia Sánchez, to the right of which will be added the corresponding denomination of the bill.

Some believe that such measures respond primarily to the large amount of counterfeit currency that, according to some, is currently circulating, which should gradually start to disappear as the new notes start to replace the existing ones in circulation. However, most of the random 50 people surveyed in Havana felt that this is a preliminary step to the announced monetary unification, which may be imminent.

This second view seems to be reinforced by the fact that just two weeks before the information of the BCC, Granma had published an article that addressed the issue of the dual currency and the need to eliminate the “distortion of the economy”, especially in the government sector.

The media’s insistence on the issue of the monetary system in such a short period of time must not be by chance, and it’s in line with the “baseball-informative” style to hit the ball before it’s pitched. This allows for people to assimilate more resignedly (more like passively) the effects that such a step might have on the common pocket. In that experiment is included the recent permission for payment in national currency at the stores that up until recently only accepted CUC (Cuban convertible pesos). So far, no information has leaked as to exactly when the unification process will begin which has already been announced; it will begin at the government level and will gradually extend to all sectors.

Solving a problem and creating another

Dual currency was created only in the interest of the government to collect all circulating currency in the country following the decriminalization of the American dollar.

Economist Joaquín Infante, of the Union of Economists of Cuba, said in a statement to Agence France Presse that eliminating the dual currency “is one of the most important steps” of economic reforms being implemented by President Raul Castro. He also felt that “monetary and exchange rate unification is an urgent, strategic decision” that “should have been made long ago.”

It probably would have been a tall order for him to express a more obvious truth: The dual currency was only created in the interest of the Government to collect all the circulating currency in the country after the decriminalization of the dollar, announced by Fidel Castro in his speech of July 26 1993, and then approved in the Official Gazette of August 13th of that year, dates that show that the then Cuban President took the “enemy” currency issue very personally.

So, the convertible peso (CUC) began circulating in 1994. Comparable to the US dollar, CUCs and dollars began to circulate simultaneously until 2004, when the dollar was finally withdrawn from circulation, though the penalty for its possession was not reinstated. Thus, for at least for 10 years there were not only two, but three currencies in circulation: The two Cuban currencies: the CUC, nicknamed “chavito” or “carnavalito” (little carnival because of its coloring); the CUP or non-convertible peso; and the US dollar. This had not happened since the national currency was created in 1914 during the presidency of Mario Garcia Menocal, when the Cuban peso made its debut as a legitimate currency in the country, with legal value and as the unlimited legal tender for payment of any obligation within Cuba.

More questions than answers

Cuban-style government, and, as a consequence, its monopoly on information too, are based on an unrestrictive conspiring principle: everything is a secret, supposedly “for security reasons, because we are besieged by a powerful enemy”, but on the issue of the much heralded and long-delayed monetary unification, reality points toward more plausible causes, such as a lack of liquidity and the economic and financial crisis that the system–and with it, the country–is going through where monetary duality creates a distortion that hinders the government’s interests in attracting foreign investors.

On the issue of the much heralded and long-delayed monetary unification, reality points to causes such as lack of liquidity and the economic and financial crisis of the system

Indeed, dual currency is not a “Fidel creation”. In China there was also a dual foreign exchange where one of the currencies was hard currency; the other one was not “convertible so it had a much lesser value. However, the reforms that allowed a rising of the economy in that country allowed the unification into one strong currency with internationally recognized value. It’s not the case of Cuba, where after a process of “updating the model” and countless incomplete reforms, the economy shows no signs of recovery and the currency lacks absolutely any value in the international market.

On the other hand, the loss of wages in Cuba by the huge difference in value of two circulating currencies has created uncertainty about the ability for public consumption once unification occurs. The increasing trend of commodity prices in the domestic market, coupled with the many restrictions that hinder the economic empowerment of citizens and the unfair wage regulations that will be applied to workers in foreign companies –onerously taxing hard currency in the change- is not conducive to optimism.

At any rate, the BCC has not yet informed the public about a timetable for unification, much less, the exchange value of the final currency… the humble CUP.

As my colleague Reinaldo Escobar said a while back in an article posted on his blog under the title of ¿Cambio Numismatico? (Currency Change?), “The question we ask ourselves is whether there will be a change in the value of our salaries. How many hours will we have to work–once the currency is unified–to buy 500 grams of spaghetti, a litter of oil or a beer?”

The good news is that from the currency unification on, Cuban workers will have a more clear awareness of what “real salary” is. Perhaps by then the official media will stop informing us about the statistics about poverty levels in other countries, including those “poorer than ours”.

And, at the end of the day, can someone explain what the purpose of the dual currency was for us?

Translated by Norma Whiting