Cuba’s dollar dividehttps://indianexpress.com/article/news-archive/web/cubas-dollar-divide/

Cuba’s dollar divide

The only country in the world with two national currencies,to deal with locals and foreigners,wrestles with unifying them

Cuba is the only country in the world that mints two national currencies,a bizarre system that even President Raul Castro acknowledges is hamstringing the island’s socialist economy and must be scrapped.

Exactly how to do that is the problem.

Months after Castro made currency unification a centrepiece of a forceful address to Parliament,no details have been made public.

Since the system was created in 1994,most islanders have been paid in national pesos worth 24 to the dollar in exchange houses,while tourists and the Cubans who attend to them receive a much more valuable peso pegged at 1-to-1 with the US greenback.

The imbalance means doctors and physicists can make more money driving taxis or renting rooms than they can working in the professions for which they spent years preparing. In his July speech,Castro denounced the set-up as having a warping effect on the economy and society in general.

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Shaking up the dual currency system risks spiking inflation and creating new winners and losers. It would also force a change in accounting rules that would eliminate a huge subsidy to state-run enterprises at a time when cash is so short.

But there are signs of change. Pavel Vidal,a former Cuban Central Bank economist now at Colombia’s Javeriana University,said a pilot programme is being launched with select state businesses operating at a 10-to-1 exchange rate.

The businesses are in key sectors such as sugar,hotels and non-agricultural cooperatives. “I think it’s great because the elimination of the double currency must be gradual,” Vidal said.

Even incremental change may be tough to pull off,and requires the unravelling of Byzantine accounting practices that effectively allow state companies to purchase dollars at a fraction of what ordinary Cubans pay for them.

While the rate in exchange houses is 24 pesos to 1 convertible peso,or CUC,the Cuban government treats them as equal in official accounts,meaning state entities are getting them at a 1-to-1 subsidised rate.

“Whoever is getting these dollars at one-to-one is doing well,and that’s the official sector,” said Rafael Romeu,former president of the US-based Association for the Study of the Cuban Economy.

Despite reforms under Raul Castro,the state still may be too inefficient to quit the subsidy cold-turkey. “They would have to cut a lot of social services,” Romeu said

The two Cuban pesos have been circulating in parallel since 1994,when the loss of billions in Soviet trade and subsidies forced Cuba to reluctantly open the economy to tourism,while trying to insulate most islanders from its capitalist effects.

The idea seemed simple: Canadian and European travellers would spend hard currency at government CUC shops catering almost exclusively to foreigners,while Cubans would keep living a socialist ideal in the other currency.

It hasn’t worked out that way. As authorities pulled back on subsidies,people grew increasingly dependent on the added CUC income — moonlighting in the tourism industry or receiving remittances from relatives abroad.

The result is the upside-down wage structure where low-skill workers like hotel chamber maids earn more from travellers’ tips than professionals. A 53-year-old doctor recently left the medical profession after 25 years because his $25-a-month salary was putting food on the table for just two days a month. He now helps his mother rent rooms to tourists paying in convertible pesos.

Cuban officials have long argued that state salaries are effectively much higher than the often-reported average of $20 a month if you factor in things such as free healthcare,education and monthly food ration cards.

At stores that still offer cheaper prices in national pesos,goods from soap to mops sell out quickly,snapped up by hoarders or black marketeers. So finding basics such as cooking oil and eggs often entails a trip to a CUC store.

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“It’s totally absurd that you get paid in one currency,but in order to live you need to pay with another,” said Margarita Nieves,69. “Until they fix that,they can’t keep telling people there’s no productivity.”