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In previous texts I have expressed and now with greater evidence, that a CUC is simply the same as 24 CUP, directly tradable between them. Therefore, in that sense the monetary duality is only formal.
What’s new and complicated is that the CUC no longer seems to be convertible (that is, the last C would be left over) and therefore it could be easily eliminated, it’s already like the “appendix,” that is, it was useful for something, but it no longer has a necessary function.
The issue now is not the monetary sign but the exchange rate between the CUP and the dollar (or between the CUC and the dollar making the adjustment, it doesn’t matter, because the latter is in practice 24 CUP―unless its value is changed if so decided to eliminate it and change it to a new rate for those citizens who have savings in CUC―but at this moment the CUC is, I insist, is simply 24 CUP).
Now, on the one hand, for the population and without the tax, the exchange rate is 24 CUP for a dollar or 1 CUC for a dollar, but this is only in accounting terms and operations in one direction, that is, to sell dollars to the monetary system, not to buy them, since as I have explained neither the CUP nor the CUC are currently directly convertible in any operation. In practice, this rate only operates now as a measure of value, to sell dollars (in one direction) and as a benchmark for the black market in foreign currencies, which will most likely be activated with even more speculation, as I understand from what has been said that dollars will no longer be sold in the CADECA exchange offices, nor will the population that has them be able to use them directly, but through deposits in the bank and with debit cards, which will also have to be seen how it works in practice: banking services, electronic networks, post operations, etc.
On the other hand, for the business system, the official exchange rate remains as it is to date, 1 CUP for 1 USD. This is the most complex point for the monetary and exchange reform, that is, the necessary devaluation of the CUP for business operations in the state sector that are obviously the national economy’s most important. The exchange rate that is established with an economically based calculation will strongly move the entire economic system, including relative prices, wages, subsidies, etc., which is why the decision is very complicated, but also essential. For example, without this factor, any “exhortation” to have an “export mindset” is very weak, because it only appeals to the subjective behavior of economic agents, when the objective conditions of the economy (official exchange rate) encourage the opposite.
Of course, in addition to that overvalued exchange rate that exists now, enterprises need to be assigned foreign currencies to operate, which is an administrative decision motivated, especially at this time, by the shortage of foreign exchange.
Returning to the complexity of the issue for the population―including the self-employed―, the point is: what offer in goods and services will the CUP and the CUC have, which is supposed to be the same in practice because they are freely interchangeable currencies, this is central because if it’s a reduced offer, only for basic need products and of lower quality, then it could be a strong disincentive for the non-state sector, which could imply a reduction in its ability to generate jobs. This would be very delicate especially at a time when that function is increasingly necessary because if business functions are decentralized in the state sector (as has been said and as is correct) then the surplus of supernumerary workforce there will lead to a reduction in state employment as a condition (not the only one) for greater efficiency.
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In previous texts of more than two years ago, we had proposed maintaining the offer to the CUC as it was and to create in the free zones a direct offer only in foreign currencies to competitively sell what informal importers brought and which implies a permanent and enormous outflow of the country’s foreign exchange, the state would make these imports in better conditions, offer more competitive prices and also retain a non-negligible commercial gain in a limited market that would be self-financing and that, in addition, would be a way for the population that has foreign currency or that can obtain them, to have access to scarce goods, including―and this is very important―means of production, especially (but not only) for agriculture.
This also allowed for the convertibility of national currencies at the rate that monetary policy calculated as adequate to encourage exports and discourage importing―I clarify that this would not imply the elimination of informal importers, but would subject them to different conditions of competition, which reduces their “super profits,” favor the population, including non-state producers, and would also favor the state.
The tremendous shortage of foreign exchange that now exists conditions limiting―almost eliminating for the time being―any convertibility of national currencies, which is understandable, but does not generate less problems, as I tried to explain.
It should be borne in mind that a part of the current self-employed are largely articulated around tourism (restaurants, room rental, transportation, crafts, etc.) and with the pandemic this demand has fallen to almost zero for several months and it’s not clear how and at what rates it will be reactivated, which is why all this sector that generates a significant number of jobs would not have direct access to foreign currency―in the event that in the current circumstances they were allowed to obtain it directly through their activity―nor could they obtain it through the CADECA exchange offices, which is why access to the market that will have the best offer would be closed. Before they could have had some indirect access, but no longer and this can have an impact on this sector by reducing their activity and, as I have said, their ability to generate employment. All this will have more importance and greater consequences even if the conditions of the money markets don’t change when micro, small and medium-sized enterprises (MSMEs) are created and operating.
Analysis on the economic-social strategy approved by the Cuban government (II)
Parallel to this, there is an inflationary risk that should be brought under control with fundamentally non-administrative economic measures. Whether you like it or not, there is always tension with the black market, which although it’s illegal is part of the economic dynamics and very difficult to eliminate only by repressing it. Historical evidence has demonstrated this with strength and persistence.
What I express is not at all a criticism of the reform that has begun, which I consider is going in the right direction and has included measures of great importance that have returned the initiative to the government in the main challenge it has today, that is, reactivating the economy with a fundamental and comprehensive reform.
The intention of this reflection is to accompany and contribute to a necessary and committed debate, to continue the advancement of the economic strategy looking for the most appropriate solutions to overcome the inevitable and very complex contradictions and conditioning factors for an economy and a country subject to a strong economic blockade, but one that has decided to resist and advance against all odds.
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Authors
Julio Carranza,
juliocarranza
