Ed. Note: This article talks about Cuba’s two currencies, the Cuban peso and the Cuban convertible peso, and the potential ‘unification’ of the two currencies. The Cuban peso is also called “national money” and by the acronym “CUP.” The Cuban convertible peso (“CUC”) only came into use in 1994. It is not convertible outside the country and so has no ‘market-based’ exchange rate in world currency markets. The CUP is officially pegged at 24 per CUC. The dollar/CUC exchange rate is officially one-to-one but the actual official exchange rate varies according to exchange fees and taxes applied to the transaction, as discussed in the article; the unofficial exchange rate varies according to the vagaries of the underground market. The Cuban government has promised, for years, to unify the currencies, but has not yet done so.
Iván García, 18 January 2018 — In the illegal world of the foreign exchange market on the Island, any rumor or leaking of information rings alarms. In addition to taking advantage of the gaps that cause the artificial state exchange rate for the U.S. dollar, an astute loan shark is always attentive to fluctuations in the exchange rates.
Ignacio, a guy who wears retro sunglasses, tight jeans and low-cut sports shoes, is one of those who takes advantage of the most minimal information.
“I’m romancing the manager of a bank. And some days ago she told me that there are movements in the bullpen. Probably before April 19 — the supposed date of Raúl Castro’s retirement — the government will execute the unification of the currency.
With this unconfirmed information, Ignacio, along with several friends involved in clandestine exchange operations, started to buy the dollar at 0.97 CUC. The Central Bank of Cuba pays 0.87 CUC, justifying the Castro brothers’ tax under the pretext of the U.S. embargo.
But it’s a longer story. After the arrival of the bearded Fidel Castro, the exchange of the dollar and other hard currency was converted into an absurdity that distorted the national economy.
Before 1959, the dollar had an exchange rate of one for one with the Cuban peso.
“It was supported by a growing productivity, a vigorous economy and a powerful private empresarial elite. Fidel took this exchange rate as a reference and kept it for a time. Meanwhile, the Cuban economy was stumbling, because of the “blockade,” bad strategies of the managers or systemic failures caused by an economic plan that was copied from the Soviet Union. If they would have let the dollar float against the peso, in 1970, for example, a dollar would have been worth 50 Cuban pesos, at least. The illegal exchange market, in an empricial way, moves in accord with the law of supply and demand of the dollar. With greenbacks being prohibited until 1993, these financial operations were very dangerous: If the police caught you, you could go to jail for three to five years,” says Hiram, an ex-officer of the Central Bank.
Julio Antonio, an older gentleman who has spent four decades in the business of buying and selling hard currency, above all the dollar, adds more details:
“In the ’80s, they called the money changers jineteros (hustlers). On the streets of Vedado, and on beaches like Varadero and Santa María del Mar, east of Havana, we were buying dollars directly from the few tourists who came to Cuba. At that time, a peso was worth four dollars. The State was buying them one for one. And many foreigners, so that their money would go further, weren’t selling them to us. When the Special Period arrived in the ’90s the dollar shot up and was selling at one dollar for 150 pesos. Later, the government fixed it at 24 pesos. But we were paying under the table one or two on top of that, because the people going on internationalist missions in Venezuela, Ecuador and South Africa, among other countries, needed dollars to buy stuff cheap and then resell it in Cuba. We have always been two steps ahead of the State’s exhange rate.”
In the autumn of 2005, Fidel Castro, punched a table in anger, because the U.S. Treasury Department had detected a Cuban account with 5 billion dollars in the Swiss bank UBS, supposedly for exchanging old bills for new ones, and he resolved to decree a “revolutionary” tax on the money of Enemy Número Uno.
The tax rate was 20 percent, lowered to 10 percent when Raúl Castro began governing.
“If a dollar cost 80 cents, on the street it was being bought at 90. Now that the government buys it at 87 cents, under the table it’s bought at 90, at least [on the street]. It depends how many dollars are in circulation. But the stable non-official rate is 95 cents, although at certain times, it goes up to 97 and 98, since there is a strong demand from the “mules” who travel to Central America, Mexico or Russia. With the rumor that is being spread, I assure you that when the two monies are unified, the dollar will be worth 10 or 15 pesos. And I might be short,” Ignacio analyzes.
Dagoberto, licensed in tourism, considers that “this exchange rate, in addition to being false, is counterproductive. This is reflected in expenditures by tourists. The ones who come to Cuba spend on average $655 [USD]. Those who go to Punta Cana in the Dominican Republic spend more than $1,200, almost double. One reason is that they drive up the prices for tourists. To this, add the fact that in Cuba’s hard currency shops everything is too expensive, with taxes between 240 and 400 percent. The ideal, to attract more dollars, euros, pounds or Swiss francs, is to adjust the money to a real reference.”
According to a source at a branch of the Banco Metropolitano, “Since July they have been postponing the contracts with State enterprises, whether they are in hard currency or the national money. It’s a sign that monetary unification is on the way. At the latest, before 2018 is over. It’s noticeable in the current private accounts. Many clients are keeping their money in pesos, since even though they’ve been told that they won’t be affected by the unification, there are always fears and prejudices in the population.”
For experienced loan sharks, “the best way to keep savings or monetary earnings of a private business is in dollars or euros, jewels, preferably of gold, and works of art. What’s coming looks ugly. An increasing inflation and more money than products to buy. The Cuban economy is in a bad way,” predicts Julio Antonio.
Financial experts say that if you want to apply a reasonable economic strategy, the distortions caused by the dual currency ought to come to an end. What’s not clear is what will happen afterwards.
Translated by Regina Anavy