Your next trip to Cuba will likely require a new form of currency. Cuba will end its dual currency system on January 1, phasing out the Cuban Convertible Pesos (known as CUCs) wielded by travelers and establishing the Cuban peso as the only legal tender on the island. President Miguel Díaz-Canel announced the changes in a special televised speech on December 10. Former president Raúl Castro, who remains Secretary General of the Cuban Communist Party until next April, accompanied Díaz-Canel on the broadcast, reflecting the importance of the news.
The long-anticipated currency unification, Díaz-Canel said, “was not a magic solution” to the current problems Cuba confronts, but would put the country on a stronger footing “to go ahead with the transformations that we need to update our economic and social model.”
Any tourist who has been to Cuba in recent years knows the CUC well. All Cuban cigars, restaurant and hotel bills and any other payment are priced in CUCs, which are fixed at an equal value to the U.S. dollar, even though they cannot be used outside of Cuba. When changing U.S. dollars to CUCs, travelers have traditionally been assessed a 13 percent fee, but Cuba abandoned that policy in July, when the island was essentially shut down to travel, reducing the fee to 3 percent. When leaving the island, changing CUCs back to U.S. dollars is done one-to-one.
For roughly 16 years the CUC has been the primary currency used in the tourism and private sectors as well as for purchases of consumer goods, while the state sector has continued to use the Cuban peso, known as the CUP, creating an unwieldy, two-tier, monetary system that has proven inequitable for Cubans and inhospitable to foreign investment Cuba hopes to attract.
Cuban nationals also get CUCs, especially when they work in the travel sector. A government decree issued on December 11 gives Cubans who have accumulated CUCs through June 2021 to exchange them for Cuban pesos. The exchange rate was pegged at 24 pesos to the dollar, marking a dramatic devaluation of the currency value.
Economists have warned that the unification would hit the Cuban populace hard, causing significant dislocation and inflation of the prices of food and basic goods. “The immediate impact will be that inflation will be unleashed and the purchasing power of the population will drop in parallel,” economist Carmen Mesa-Lago told the Miami Herald. To adjust for inflation, last week the government also announced a rise in government salaries and pensions. The wage hikes, however, do not apply to at least 2 million Cuban workers who are employed in the non-state sector.
The predicted impact on Cuban society has led to repeated delays in implementing the currency unification. As far back as 2011, the government of then President Raúl Castro began planning to end the unusual dual monetary system in which the majority of Cubans use local pesos while transactions in the tourism and private sectors, international business and the purchase of imported consumer goods are conducted in the convertible currency.
The monetary reform comes as the Cuban economy is facing its worst crisis since the “special period” of the 1990s. The country is struggling to recover from the impact of the COVID pandemic, which forced the island nation to close its borders to international tourism until just last month. The economy has also been pummeled by a series of Trump administration sanctions, and by the economic implosion of Venezuela, Cuba’s leading ally in the region.
NOTE: The original version of this story failed to mention that Cuba changed its fee on changing U.S. dollars to CUCs in July.