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Economy & Business - January 2021

ECONOMIC HIGHLIGHTS

CUBA | Dual currency system ends. On 1 January a new reform took effect ending Cuba’s dual currency system, which had been split between a convertible peso (CUC), pegged to the US dollar, and a domestic peso (CUP), with an exchange rate of 24 to the CUC. Announced in December 2020 by the Communist government led by President Miguel Díaz-Canel, the reform sets the now single exchange rate at CUP24/US$1 and phases out the CUC within six months. The change was widely considered necessary to stabilise the national economy given the triple crisis facing Cuba posed by the coronavirus (Covid-19) pandemic and its impact on the island’s crucial tourism sector; US economic sanctions; and the ongoing economic collapse of its key ally, Venezuela. Yet the impact of the reform and the effective devaluation of the peso, which is set to drive up inflation and erode Cubans' purchasing power, continues to spark widespread concern. Acknowledging these concerns, the government announced plans to raise salaries, pensions, and social assistance. Under the changes, the minimum monthly wage for those employed in the state sector (which accounts for most jobs) will rise from CUP400 to CUP2,100 (US$87.5), while the more than 1.7m Cubans who benefit from social security will see monthly pensions rise from CUP280-CUP300 to CUP1,528. However, the wage increase does not apply to the private sector, and economists and the government itself recognise that this, along with other measures of support for the population, are unlikely to offset the increased costs of the basic food basket, which will come in at CUP1,528; nor that the elimination of various other subsidies that have also been announced by the government.

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