Cuba’s dual-peso system, in place for 20 years, will soon be no more and cigar maker Brascuba is ready for the currency’s unification.
“It’s imminent; we are prepared for it and expect it for the first quarter,” Alexandre Carpenter, co-president of Brascuba, a joint venture between Rio de Janeiro-based Souza Cruz SA and state-owned Tabacuba, said in a telephone interview on Dec. 30. As of now, there is no set date for the currency change, he said.
The plan for a single currency was disclosed in 2013 and comes as the nation of 11.1 million, where most of the economy is under state control, slowly opens its doors to foreign nations and more privatization. Cuban Central Bank President Ernesto Medina told the country’s state news agency in October that the elimination of the dual system is a critical step in preparing the economy for the global market.
U.S. President Barack Obama announced last month plans to restore diplomatic ties with Cuba and increase trade and travel to the island.
The collapse of Soviet Union subsidies forced the Cuban government in 1994 to create a convertible peso worth $1 in an effort to improve its access to dollars entering the country through tourism and remittances by Cubans living abroad. The convertible peso known as CUC circulates beside non-convertible pesos most Cubans receive as salary and use to buy basic goods.
Brazilian construction company Odebrecht SA, responsible for works in a port, airports and a sugar plant on the island, is also ready for a single peso, according to a person close to the discussions.
The person asked not to be named because the government is keeping the information private to avoid a run on the currency.
Unification is also being driven by the fall in preferential oil supplies from Venezuela, which have allowed President Raul Castro to maintain subsidies on basic goods priced in non-convertible pesos, according to Rafael Romeu, president of economic consultancy DevTech Systems and a member of the Washington-based Association for the Study of Cuban Economy.
“Castro’s government will no longer be able to inflate away the inefficiencies of the economy by printing more unconvertible pesos,” Romeu said in an e-mailed response to questions.
An official at Cuba’s International Press Center didn’t return a phone call and an e-mail about the timing of unification. Today, New Year’s Day, is a public holiday in Cuba.
Romeu said the central bank will have to devalue the currency soon after unification, as it doesn’t have enough dollar reserves to back the convertibility of the new unified peso. One CUC is currently worth 25 local pesos known as CUPs.
A weaker currency will increase pressure on prices and boost inflation, he said.
“The bottom line is that the government will have to continue eliminating subsidies until its deficit is closed and it no longer needs to print away money,” he said. “Because of Cuba’s low wages you can imagine how difficult it will be politically for the government to do that.”
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