The elimination of currency dualism and adoption of a currency peg could provide the foundation for a new and exciting episode in Cuba's economic history in which investment, consumption and trade strengthen in a sustainable way. The move presents risks, but these may be less than the government fears, while the economic costs of inaction are not only huge but also growing. Currency unification is therefore increasingly urgent. Once unification is achieved, the monetary authorities will need to choose a mechanism for maintaining a stable but flexible exchange rate. Singapore provides an example of a country that has flourished thanks in part to a (modified) currency peg and in which the state plays a very important role within the economy, but its conditions differ in many important respects from Cuba’s. The problems in raising sufficient international capital to support the peg highlight special difficulties faced by Cuba in its search for a place in the global market, arising from its history and ideology as well as US sanctions, but the ongoing restructuring of the domestic economy, and the diversification of trade and investment partners, are creating new requirements and possibilities for innovative solutions.
References
Mesa Lago, C and Pérez-López, J, Cuba Under Raúl Castro, Assessing the Reforms, Lynne Rienner Publishers, Boulder CO and London, 2013.
Hanke, S and Schuler, K, Currency reform for a market-oriented Cuba, Blue Ribbon Commission on the Economic Reconstruction of Cuba, 1992.
