CUBA | Early days of a “painful” monetary revolution

The specter of hyperinflation adds to the reality of shortages in Cuba, many of whose inhabitants are distressed by the consequences of the entry into force, on January 1, of the monetary unification process on the island. It is one of the most difficult economic reforms to undertake, as it entails a brutal increase in prices, including those of basic services, which have traditionally been subsidized by the State. Cubans will pay more for food, transportation, legal procedures, postal services, water or electricity. The announcement of a rise of almost 500% in the electricity tariff caused such discomfort in the population that the Government backed down and reduced it significantly.

Generalized price increases will be accompanied by an increase in wages, although it is assumed that they will do so at a slower pace. The process, which all experts consider necessary for the survival of the Cuban economic model, was announced in 2013 and has taken eight years to see the light. The objective is to end the serious economic distortions caused by having two currencies: one real, the Cuban peso (CUP), and another artificial and equal to the dollar, the Cuban convertible peso (CUC).

A painful revolution

The reform, a true monetary revolution, sees the light in the midst of a fierce economic crisis aggravated by the COVID-19 pandemic and by the sanctions of the US administration. During the next six months, the CUC may be exchanged at banks and exchange houses or used as cash payment at state businesses, which will return the change in CUP.

The exchange rate with the dollar that came into effect on January 1 was 24 CUP for each US greenback. This Monday, January 4, it was on some internet pages at 26.5 CUP per dollar, although in the informal market it is already around 50 CUP per dollar.

“It will be difficult to live without working”

Despite the fact that the monetary reform will be accompanied by a profound upward revision of salaries and pensions in the public sector, where the majority of the active population works, the generalized rise in prices and the disappearance of (a good part of) state subsidies they paint a bleak picture for those who do not have a job or are paid low. Cuban Economy Minister Alejandro Gil summed it up like this in early December: “It will be difficult to live in Cuba without working,” he said in a televised appearance.