Saturday, October 25, 2014

Cuba dual currency panorama

Cuba dual currency panorama
Submitted by: Oscar Rojas Curbelo
Business and Economy 10 / 24 / 2014

One of the challenges that Cuba face nowadays is to remove dual
currency. If during the first half of the 90s, when the country was
plunged into a deep economic depression due to the collapse of the
Soviet Union, circulation of two currencies functioned as a useful
measure to revive the economy, currently it shows as an obstacle.

Monetary duality refers to coexistence of two currencies in the same
economy. It means two currencies are used as means of payment, measure
of value (expression of the prices of goods and services sold, debts and
registrations of economic values) and as a means of hoarding (bank
deposits and cash).

Monetary duality proceeds generally from special economic situations
where production system is severely affected. In the case of Cuba it
began in the early 1990s when the Island lost its main trading partner
and the Government opened a program of integration into the
international economic context. Monetary duality is not an exclusively
Cuban process. Others economies, like China, have lived that process too.

Despite the serious shortage of foreign exchange and its urgent need, on
August 13, 1993 the Cuban Government legalized holding American Dollars
for individuals and bank accounts in USD were authorized, one of the
most controversial measures of the economy transformation program in its
more than 50 years. The Cuban peso did not satisfy the demand of goods
and services, so circulation of dollars was essential. Other measures
such as openness to foreign investment-employment and incited attract
foreign capital.

This phenomenon of partial dollarization of economy caused,
provisionally, a dual monetary regime. It was a decision that could not
be delayed either from a financial point of view, not from a political
point of view. Cuba achieved the desired reorientation and generated
significant internal changes. External threats caused the replacement of
the Dollar by the Cuban Convertible Peso (CUC) which persists to this day.

Without stability and dollarization there is no justification to
maintain two currencies. The dual currency clouds accounting and
economic policy at both national and enterprise level, distorts
financial measurement and decisions, hides subsidies and taxes that are
incorrectly assigned and prevents linkages among firms. Financial
decontrol, inefficiency, underdevelopment of the productive forces are
other consequences of dual currency that jeopardizes the international
credibility of Cuban economy.

The end of dual currency is a slow process that carries an action
program to certify its effectiveness. Cuban economists have a mission to
design and implement a strategy to ensure a real import substitution: to
strengthen production of goods and services, to protect national
industry and to enhance national market.

Corruption and fraud will not disappear with dual currency because
purchasing power of wages does not change and this is associated to
organization, efficiency and labor productivity and not with monetary
policy. Recovery of wages requires structural reforms in Cuban economy.

Already more than 20 years that this economic phenomenon lives in Cuba
and the more time passes the more it damages our economy. Is it near the
end of this phenomenon? Does the country still is unable? The decision
exists strategically on Guidelines of the Economic and Social Policy,
but we do not know how strategic it is.


Source: Cuba dual currency panorama | Cuba Headlines – Cuba News,
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