Cuba eyes first official peso devaluation since 1959 revolution

[El Presidente]

 

Cuba eyes first official peso devaluation since 1959 revolution

https://www.aljazeera.com/ajimpact/cuba-eyes-official-peso-devaluation-1959-revolution-200910153412283.html

Authorities will also unify Cuba's two currencies, keeping the peso but eliminating the convertible peso, Reuters said

Communist-run Cuba will soon devalue the peso's one-to-one exchange rate with the United States dollar for the first time since the 1959 revolution, according to three sources who requested anonymity due to the sensitivity of the subject.

As part of the reforms, due before the end of this year, authorities will also unify Cuba's two domestic currencies, according to two Cuban sources and a foreign businessman, all with some knowledge of the plan.

The peso will be kept and the convertible peso, which is fixed on par with the dollar for state business but exchanged with the public at 24 pesos to buy and 25 pesos to sell, will be eliminated, the sources said.

Cuba's government has said it will respect the peso's current rate with the public for a time to allow residents to change their convertible pesos for pesos and do so automatically for convertible peso bank accounts.

"The most important measure is going to be changing the official exchange rate used by the state companies," Omar Everleny, one of Cuba's best-known economists, told Reuters news agency.

"There are several proposals. It will never be one on one ... It is between 10 and up," he said.

The peso's value versus the Canadian dollar, euro and other convertible currencies is also expected to be adjusted downward based on international market rates.

Psychologist Yanisey Ferrer puts sanitiser gel in her daughter's hands amid concerns about the spread of the coronavirus disease in Cuba [File: Alexandre Meneghini/Reuters]

The Cuban economy is largely owned and run by the state, and exchange rates are set by the government.

The measures are part of a package of reforms aimed at fighting an economic crisis caused by tough US sanctions under President Donald Trump and exacerbated by the coronavirus pandemic and the bureaucratic inefficiency of the island's Soviet-style economy.

Shortages of basic goods have worsened this year, with long lines a common sight at many stores around the country. The closure of the tourism sector has left many Cubans without work, although flights from Canada resumed last week.

Dollars circulating

The government hinted in July it would adopt the monetary reforms and other measures such as loosening centralised planning and restrictions on small businesses, first called for by the Communist Party about 10 years ago.

A police officer organises a line of people waiting to buy food amid concerns about the spread of the coronavirus disease in Havana, Cuba [File: Alexandre Meneghini/Reuters]

According to the three sources, there will be a significant increase in state wages, pensions and prices due to the devaluation of the peso by as much as 95 percent, or to about 20 pesos to the dollar.

Everleny said the devaluation meant companies would have much higher costs and prices would increase, requiring increased wages and pensions.

Economy and Planning Minister Alejandro Gil said in July that reforms were needed to stimulate exports and reduce imports as the local currency is not exchangeable on the international market to buy goods and pay the debt.

Experts forecast Cuba's economic activity will drop by nearly 10 percent this year, after stagnating in 2019. Government officials have admitted the lack of a convertible currency has forced a postponement of debt payments and drastic cuts in fuel, food and other vital imports.

Economists have long argued that the one-to-one official exchange rate - as well as the different rate of the convertible peso and various exceptions by sector - have stymied exports and encouraged imports because a dollar earned is accounted for as a peso and vice versa, making it difficult to decipher if a company is profitable.

The government began allowing the dollar to circulate electronically with a bank card a year ago and is opening dollar stores offering everything from used cars and domestic appliances to food and hygiene products.

The sources said they expected the dollar stores to increase at least in the short term to provide stability and capture greenbacks to import goods.

Many Cubans receive hard currency from abroad and from servicing the tourism industry.

"The monetary reform is very close. This is the moment," said Everleny, who supports the measures even though he warned they could be traumatic for some.

SOURCE: REUTERS NEWS AGENCY

[LLC]

I think the experts saying economic activity will drop 10% is a dream. Tourism which stopped in March and likely to not get back to normal or any where near normal this year will have a significant impact.


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[Nino]

10 hours ago, El Presidente said:

 

"The monetary reform is very close. This is the moment," said Everleny, who supports the measures even though he warned they could be traumatic for some.

 

Been hearing that "monetary reform" is very close for the last 10 years .... Good luck.

[amberleaf]

Does this mean I'll never get to spend the 20 CUCs I found in the pocket of my shorts after my last trip?

[vhampl03]

What does this mean (if anything) for cigar prices or tourism costs - if ever I’m able to visit the island.  Thanks.

[Fugu]

8 hours ago, nino said:

Been hearing that "monetary reform" is very close for the last 10 years .... Good luck.

long overdue, for sure, but will still be far from being THE solution to it all....

[Nino]

According to this yesterday's blog post the CUC will be accepted for another 6 months from Oct 1st. at the official rate of 24 CUP to 1 CUC - after that it will be 20 CUP to 1 CUC and it seems only the US $ and the MLC ( freely convertible currency ) will be accepted from then on with the CUC off the race and only the CUP being accepted.

Honestly - even speaking Spanish, this 10 minutes of hot air bla bla bla detailing the currency situation makes me dizzy ... too many currencies.

Wonder what a Cuban with no access to neither US$ or MLC will do in the future to get basic needs ...
 

 

[CanuckSARTech]

On 9/11/2020 at 3:55 AM, nino said:

Been hearing that "monetary reform" is very close for the last 10 years .... Good luck.

Yeah, I thought I remember hearing that back when Erin and I first travelled to the island in early 2008.  They were saying back then it was part of the economic reform, along with the all-new efficient stuff from China/Koreas, the LG air conditioners, flat screen TVs, CFLs, etc., all to revamp the country then.

I remember on many past trips that travel advisories were saying to exchange money back, as the CUC was going the way of the dodo bird.

I have a fair chunk sitting at home from my last trip.  I always like to have some, that way that first taxi ride and/or night out can easily be paid for, without worrying about airport money exchange scamming or trying to get to a trusted location / bank right away.  So, if the valuation changes, so be it.  But if they outright get rid of the CUC (as that's how I'm reading that), that would definitely suck for a lot of people.