Cuba’s recent announcement that it will be merging its two currencies was the most exciting development in my life in months. But let’s blow right past the part where my life is apparently excruciatingly boring and get to the fun currency stuff!
Cuba’s currency situation has been cray for a while now. For the past two decades, the peso convertible (CUC) has been used by rich folk and tourists, while the peso cubano (CUP) was used by the unwashed masses. And I mean unwashed–many Cubans barely make enough CUPs to cover the cost of soap. The CUC is quasi-pegged to the US dollar, and it is now worth about 1.03 USD. Twenty-five CUPs are worth one CUC. The tale of these two star-crossed currencies is a story of persistent inequality in spite of, and at times because of, Cuba’s communist regime. Human nature and global necessity have given rise to a two-tiered society in Cuba, and Raul Castro’s regime is attempting to level the playing field with reform. But can a unified currency unify Cuba?
An article in the Havana Times describes the feeling of having to pay for goods in CUPs instead of CUCs in a humorously depressing way: “The numbers are shocking…they remind you how screwed you are.” This is because many consumer products are priced in CUCs, so Cubans must change the CUPs they are paid in to purchase them. But most Cubans who get paid in CUPs only dream of being able to afford the flatscreen televisions and other luxury items that CUCs could get them. Many would settle for the money to buy a beer on a hot day.
Cuba’s GINI coefficient, a measure of income inequality, has been on the rise since the fall of the Soviet Union in 1989 and the introduction of the peso convertible in 1994. In the late ’80s it was estimated at 0.24, but by the mid-2000s it had risen to 0.5, moving The Economist to comment that “Cuba is starting to resemble the rest of Latin America, but without the civil liberties.” Also, most of Latin America can afford to pay its doctors and doesn’t come close to having the highly developed underground economy that Cuba does. Take a step in any direction at a Cuban resort and you will find something being done under the table in the name of helping an enterprising Cuban renovate his home or buy a car. Even my parents, two of the most straight-laced people who have ever existed, accidentally purchased contraband rum on their Cuban vacation.
In a country where it is more lucrative to be a tour guide than a doctor, the restoration of a single currency will hopefully bridge the gap between Cuba’s elites and those who must choose to either circumvent the system or suffer it. Access to the peso convertible has been synonymous with affluence, and it will be interesting to watch how Cuban society changes with its gradual exit. There are worries of sharp inflation since the CUP, while theoretically equal in value to the CUC, is actually worth so much less. Adding to these concerns are questions around whether the Cuban government’s odd system of giving state-run enterprises a 1:1 exchange rate on CUCs and CUPs will necessitate painful spending cuts. However, the likely currency devaluation is attractive from a trade standpoint, especially for the tourism industry. Let’s just hope the spoils trickle down to the poor doctors who need them.
This currency drama is almost as exciting as watching all those Cuban telenovelas that don’t exist because no one has any money to make them; much like a telenovela, it will end in marriage, but instead of two ridiculously attractive people, two currencies will merge. It remains to be seen if the union will be a happy one.