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by Yosley Carrero
HAVANA, Jan. 1 (Xinhua) – The Cuban government enacted a currency reform on Friday in hopes of improving the country’s economic performance amid the pandemic and the tightening of U.S. sanctions against the island.
The reform eliminates the dual currency system in force on the island since 1994 and increases salaries, pensions and social security payments while completely transforming the price structure.
MONETARY UNIFICATION
Cuba’s planned economy has been operating with the Cuban peso (CUP) and the convertible peso (CUC), pegged to the US dollar at par and with a value 24 times greater than the CUP.
However, the CUC has had different exchange rates for the public, joint ventures and state-owned companies over the past three decades, which has created distortions in the economic system, according to the island’s authorities.
With the new measures in force, one dollar will be equivalent to 24 CUP and the CUC will be out of circulation at the end of June.
Sonia Cruz, a resident of Havana, told Xinhua that the government is moving on the right path and making wise decisions to make Cuban socialism more prosperous.
“As a state employee, I was paid in CUP but I needed to convert most of my salary into CUC to buy hygiene products and food. That complicated things,” said the 60-year-old man while waiting in line to withdraw money from an ATM near a bank.
Across the country, ATMs no longer deliver CUC bills, as grocery stores, shopping centers, and state-owned companies are giving changes only in Cuban pesos.
“We are taking steps and making reforms to improve our economic performance,” said Aile Ruiz, a private sector employee. “This is something that will also improve competition between companies and boost entrepreneurship.”
The Central Bank of Cuba will update the daily exchange rates of Cuban pesos with foreign currencies.
Local authorities said that low-income families will receive help to cover basic expenses, while state-owned companies that report losses due to financial reform will receive government subsidies for one year.
WAGES, PENSIONS AND PRICES
The Caribbean nation has quintupled the national average wages, pensions and social security payments, which will improve the purchasing power of millions of people across the country.
René Pérez, a bus driver transporting travelers from Havana’s historic center to the outskirts of the city, told Xinhua that these measures will help young people feel more committed to their work.
“I will earn a higher salary and will be able to improve my family’s standard of living,” said the 22-year-old. “This is something that will certainly make our economy more prosperous.”
In addition, the social security system will provide assistance to more than 118,000 people, since about 1.7 million older people will benefit from the increase in pensions.
Among them is Pedro Suárez, 70, who retired in 2010 after working for more than 30 years for the state sector.
“For people like me, the longed-for time has come. Now, I hope the prices of produce at the farmers market don’t go up that much,” he said as he swayed.
The government said that private sector workers cannot raise prices more than three times in light of the potential inflation caused by the devaluation of the Cuban peso.
ECONOMIC CONTEXT
It comes as Cuba expects a gradual recovery in economic activity during 2021 after the country’s gross domestic product fell 11 percent last year.
The island has already eliminated a 10 percent tax on dollars to absorb more foreign exchange, allowing citizens to use dollars to buy food, hygiene products, electronics and other goods through bank cards in stores.
In addition, the Caribbean nation launched a “one-stop-shop” system for foreign trade and investment to streamline export and import processes while attracting foreign investors to the island.
Oscar Fernández, a senior professor at the Faculty of Economics at the University of Havana, told Xinhua that keeping inflation under control will depend on the country’s ability to rationalize the internal factors that limit the takeoff of the Cuban economy.
“The only way to successfully navigate this complex economic process is to apply scientific research in the same way that we have done during the pandemic,” Fernández said.
Meanwhile, Ricardo Torres, principal investigator at Havana’s Center for the Study of the Cuban Economy, said that monetary reform would be very important for the island’s economic and financial system.
“At the end of the day, real consumption and an improvement in people’s standard of living will depend on a sustained increase in productivity, which is related to the implementation of deeper measures,” Torres added. Final product
