Cuba unites its two currencies and makes its first devaluation since 1959

Cuba long-awaited monetary reform will begin in January, the President Miguel Díaz-Canel, fixing a single exchange rate of 24 pesos per dollar, making it the first devaluation of the peso since the country’s revolution in 1959.

As part of the monetary reform, Cuba will unify the two current currencies that Cubans have carried in their pockets for decades: Cuban peso (CUP) and convertible peso (CUC), equivalent to the dollar. The CUC will be phased out.

“The corresponding elaborations and analyzes have been completed, as well as all the necessary legal norms, it is therefore considered that the conditions are created which make it possible to announce the start of the command task (monetary reform) from January 1”, Díaz -Canel said in a television appearance, accompanied by the leader of the Communist Party, Raul Castro.

Currencies in Cuba were exchanged at different rates: 1 to 1 for state-owned enterprises, 24 pesos to 1 CUC for the public and others for mixed enterprises, wages in the island’s special development zone , in Mariel, and transactions between farmers and hotels.

Economists say the reform means a short term risk for CubansBut this is important in the long run, as floating exchange rates have hampered the actual functioning of the economy.

Díaz-Canel stated that the monetary reform is not a “magic solution” to the country’s economic problems, although “this will put the country in better conditions to achieve the transformations required by the updating of our economic and social model”.

Economists expect a triple digit inflationand government announcements in recent months suggest the same. They said that the initial devaluation will be accompanied by a fivefold increase in wages and average public pensions, even when many state-controlled prices rise or are allowed to meet demand.

“The task is not without risks, one of the main ones is that there is higher inflation than expected, exacerbated by the current supply deficit”, said the president who added that “prices abusive and speculative will they face socially containment measures and severe penalties. “

The government maintains that some companies They will have a year to put their books in order before end the grants, and will continue to provide free and universal health care and education.

Cuban economists estimate that about 40% of public enterprises operate at a loss and while some will benefit from monetary reform, such as those related to the export sector, others will collapse.