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Latin American Economy & Business - July 2013 (ISSN 1741-7430)

Replacing Cuba’s dual currency system: what are the issues that really matter?

The absence of proper money is the most fundamental weakness of Cuba's economy. At present neither the convertible peso (CUC) nor the national peso (CUP) serve as a wholly satisfactory of value. Neither do they serve as a medium of exchange, nor as a unit of account. Reform of Cuba's dual currency system will require much more than a devaluation of the CUC and a revaluation of the CUP, so that they are notionally of equal value. Whatever replaces the dual currency system needs to be stable and robust, and to be seen as such. A currency board system - similar to that which has worked well in Hong Kong since 1983 - appears to be a logical alternative. In the short-term, currency reform will create winners and losers among Cuban households. However, successful reform should generate tremendous benefits for all Cubans over the medium-to-long term. If managed properly, it could support the ongoing rule of the ruling Partido Comunista de Cuba (PCC) within a country that is far richer than it is today.

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