Thursday night, Cuban President Miguel Díaz-Canel said his government will unify the communist island’s two currencies on Jan. 1.
Since the 1990s, Cuba has had the peso — used mostly for locals — and the convertible peso, or CUC, on par with the U.S. dollar — mostly for foreign transactions and tourism.
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That arrangement was meant to preserve monetary stability after the collapse of Cuba’s chief financial patron, the Soviet Union. But over time it’s created economic distortions — and gross economic inequality for those who can’t access CUCs.
Those problems have held back Cuba’s economic growth — a situation that’s untenable now with a spiraling financial crisis and tighter U.S. sanctions.
So, effective New Year’s Day, Cuba will revert to just one currency — the peso — whose value is 24 to one U.S. dollar.
Díaz-Canel said the move “will put the country in a better position to carry out [economic] transformations,” but added it will hardly be “a magical solution.”
In fact, in the short run, it might cause more pain. Adopting the peso as the sole coin will effectively mean a currency devaluation resulting in higher inflation and less purchasing power for already struggling Cubans.
Díaz-Canel said his government will soften the blow by raising Cubans’ salaries, but that’s merely a stopgap. Economists insist Cuba’s centralized economy urgently needs more private enterprise and foreign investment among the “transformations” Díaz-Canel refers to.
This week, Cuba did say it will allow foreign majority ownership of some businesses.