The BBC today reports that Cuba is preparing to take another step away from traditional communism by scrapping its dual-currency system.
At present, the Cuban peso is issued in two different versions: a convertible one, pegged to the United States dollar, and a non-convertible one for the home market, which trades at 26.5 to one against the convertible version. The convertible peso is used by foreign tourists and by the elite who have access to the tourist trade or foreign markets, while most ordinary Cubans are stuck with the ordinary peso. (There’s an explanation of the system here, although it’s a few years out of date.)
This now all sounds quite bizarre, but it’s how communist countries generally used to work. Ordinary business was transacted in local currencies that were worthless anywhere else; foreigners and the privileged few used hard currency or its equivalent. Between the two there was an official exchange rate, and a black market rate that could be an order of magnitude greater.
That system largely disappeared with the fall of the Soviet empire in 1989-91. It was already on its last legs in mid-1989 when Fred Barnes reported plaintively from Poland:
The U.S. embassy changed money at the black market rate (5,000 zlotys to the dollar, not 800). I got 100,000 zlotys and found I couldn’t spend them all. … A pocketful of zlotys gives new meaning to the expression “non-convertible currency.” You not only can’t convert it into other currencies. You can’t even convert it into anything worth buying. (New Republic, 7 & 14 August 1989)
Like many other trappings of communism, the non-convertible currency lived on in Cuba. But since the retirement of long-term dictator Fidel Castro in 2008, Cuba has been on a steady if gradual reformist track – despite the fact that Castro was succeeded by his brother Raúl, only five years his junior (and now aged 82), who had always had a reputation as a hard-liner.
Cuba remains a one-party state, but there has been some liberalisation in both economic and political spheres. Earlier this year, accepting re-election to a second five-year term, Raúl Castro promised that in future there would be term limits and designated 52-year-old Miguel Diaz-Canel as his vice-president and heir presumptive.
At the same time he promised that “he was not named president in order to destroy Cuba’s socialist system” – but we know from the eastern European experience that a wide range of reformist policies can still be marketed as “socialism” when it suits those in power.
And now, as the BBC says, the ruling party has decided that is “imperative to guarantee the re-establishment of the Cuban peso’s value and its role as money, that is as a unit of accounting, means of payment and savings.” The two currencies will be aligned to the same value, a process that may take about 18 months.