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Cuba to devalue peso steeply in January in major monetary overhaul |LAGOS EYE NEWS

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Cuba said late on Thursday it would scrap its dual currency and labyrinthine multiple exchange rate system in January, effectively devaluing the peso heavily to administer bitter medicine for its crisis stricken economy.

Announcing the long-awaited monetary reform in a televised address to the nation, President Miguel Diaz-Canel said the Cuban peso would be fixed at a single exchange rate of 24 per dollar, while eliminating other more favorable rates.

The devaluation comes amid Cuba’s worst economic crisis since the collapse of former benefactor the Soviet Union due to the tightening of the U.S. trade embargo and fallout from the pandemic.

“We consider the conditions have been created to enable us to announce the start of the task of (monetary) ordering from Jan. 1,” said Diaz-Canel, sitting next to Cuban Communist Party chief Raul Castro.

For nearly three decades, two currencies have circulated in Cuba’s state-run economy: the peso and the convertible peso (CUC), pegged to the dollar.

These have been exchanged at various rates: 1 to 1 for state-owned businesses, 24 pesos for 1 CUC for the public and others for joint ventures, wages in island’s special development zone and transactions between farmers and hotels.

While Cuba has devalued the CUC before, in 2011, the main peso rate of one to the dollar has been unchanged since Cuba’s 1959 revolution so the decision to scrap that is tantamount to its first devaluation in 60 years.

The government has said it will eliminate the CUC as part of the currency reform, although Diaz-Canel did not refer explicitly to it on Thursday, simply saying there would be just one exchange rate from January.

Economists say the reform spells short-term pain for Cubans but is important in the long-term as varying exchange rates have effectively subsidized some sectors and distorted the way economy works.

Diaz-Canel said it was no “magic solution” to the cash-strapped country’s economic problems.

“However it will favor the creation of the necessary conditions to advance in a more solid manner,” he said.

Reuters
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