Double the peso, double the trouble
Check out the referenced source here.
You walk into your local grocery store to buy a loaf of bread, and you see that it’s price tag has two different prices. Though this may seem like a hypothetical scenario, this is the reality for the dual-currency Communist country of Cuba.
Like many other Latin American countries, Cuba possesses its own rendition of the peso, which has been in circulation ever since the 19th century. However, after Cuba’s primary economic supporter--the Soviet Union--collapsed in the 1990s, Cuba decided to create the Cuban convertible peso (CUC) in order to mitigate the flow of pesos to US dollars (something that is commonly done when economic uncertainty besets the mother country of the currency). Ironic enough, the CUC was (and still is) pegged to the USD at a 1:1 rate--meaning its value is the exact same as the USD.
For most Cuban individuals, the difference between the two currencies may almost be intuitively obvious. Most employees of the state (including publicly-owned enterprises) get paid in pesos, and most staple goods are sold in pesos. CUC is mostly reserved for luxury goods, imports, and foreign visitors (which may make it the bane of tourists’ confusions).
However, for Cuban businesses, the system presents a number of inevitable economic problems.
First, several state-owned enterprises benefit unfairly from this system by having access to artificially low rates of exchange between pesos and CUC. Although pesos are inherently worth less than CUC, these firms are permitted by the government to buy CUCs with pesos at almost a 1:1 rate. This allows these firms to mask their profits in CUCs, as well as buy large quantities of imported goods.
On the other hand, the ones who are harmed are obviously those firms that do not benefit from this advantage. There is an obvious economic disadvantage for these non-state-owned firms in that they don’t have access to the import prices that the state-owned firms do. But to exacerbate this issue, export prices (which are also in CUC) are artificially high--and as such, Cuba’s economy has had a difficult time turning around its budget deficit.
Indeed, this dual-currency system is an anomaly in the world’s economy, perhaps for good reason. And perhaps, Cuba should take note of this fact in considering the continuation of the system.
