Cuba’s Mad Array of Exchange Rates

Cuba's Mad Array of Exchange Rates
October 11, 2014
Vicente Morín Aguado

HAVANA TIMES — True monetary unification will be difficult to achieve in
Cuba. The steps taken so far, coupled with what we know about how the
Party-State operates, suggest we will continue to see the opportunistic
use of multiple exchange rates, a possibility created by the monopoly
that the State maintains over all economic sectors (one of the so-called
"advantages" of socialism).

The government has declared that the two-currency system will come to a
definitive end in 2016. With evident discretion, the press has not
offered the slightest foretaste of this controversial process,
considered the toughest step in the implementation schedule of the
Guidelines of the Party Congress, roadmap of the reform process now and
underway, euphemistically referred to as the "updating of Cuba's
economic model."

Let us go straight to the heart of the matter, skipping over some
details (as the Cuban economy is like Frankenstein's monster, witch
patches have been applied in the course of years, following nights of
intense and uncontrollable fevers).

At one point, the novelty of applying two sets of prices to different
products was approved. Articles purchased at hard-currency stores are
sold in CUC, using the 1 CUC (Cuban Convertible Peso, or "dollar", in
street parlance) to 25 CUP (Cuban peso) exchange rate. Now, a television
set valued at 300 CUC can be purchased at 7,500 CUP. It's clear nothing
has changed for the majority of Cuba's tormented buyers.

In addition, dealings where a 1 CUC – 10 CUP exchange rate applies are
authorized between State companies and between State companies and
self-employed parties or cooperatives. This exchange rate is used to
revalue State funds within the monetary unification process underway.

Also and not less significantly, at the Mariel Special Development Zone,
Cuban monopolistic employers will pay workers on the basis of a 1 CUC –
10 CUP exchange rate and will consider the US dollar to be on a par with
the CUC. This, in fact, introduces yet another exchange rate to Cuba's
national economy, that of 1 USD – 1 CUC.

What's more, the population legally acquires 1 CUC at 25 CUP and sells
it at 24 CUP, and informally accepts rates of 1 CUC – 23 CUP and even 1
CUC – 20 CUP, when transactions are carried out at State stores which
had been authorized to receive only CUP for their products or services
till now.

Both legally and de facto, Cuba has a system of multiple exchange rates
which are likely to persist in the foreseeable future, given the
customary trial-and-error (if not downright improvisational) methods
inherent to the governing elite that is today leading the reform
process, "slowly but surely", intent of finally delivering the earthly
paradise of communism promised so many years ago.

Following the decision to eliminate the existing two-currency system (at
least in its most visible expression), playing around with exchange
rates and applying specific rates in some cases, has till now been
presented as a temporary solution, but it could well become a recurrent
method of the bureaucracy that holds the fate of the country in its hands.

Two economists who have for years been linked to the spheres where
Cuba's national economic decisions are made, Pavel Vidal Alejandro and
Omar Everleny Perez, leave us with the following warning: "The era of
multiple exchange rates as an effective option in the design of exchange
policy designs, has been left behind internationally owing to their
proven inefficiency and their high costs."

The quote is taken from the first, 2014 issue of Cuba's Espacio Laical
("Secular Space") magazine. The authors describe Argentina's and
Venezuela's negative experiences with multiple exchange rates, and wish
that, in Cuba, such decisions "are only a transitory mechanism, in
anticipation of a definitive convergence with a single exchange rate for
everyone."

The backdrop to this is acceptance of the market, whose unavoidable
presence is the great dilemma communists face when they design domestic
economies. A single currency is needed for the optimal flow of monetary
and market relations, and it is the one common denominator of all
economic activity.

To date, we continue to regret that Cuba's revolutionary leadership has
not undertaken a profound and sincere self-criticism with respect to its
economic experiments, all of which bear the eloquent stamp of negative
results.

Once again, the specter of appearances comes along to becloud reality.
We may finally end up with a single currency in our pockets and several
to gage the real workings of the economy.

We may only get half of the way there, swimming euphorically towards a
beach whose sands await the steps of homo erectus, and perhaps even homo
sapiens.
—–
vicentemorin@yahoo.com

Source: Cuba's Mad Array of Exchange Rates - Havana Times.org -
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