Cuba to end dual-currency system

MEXICO CITY — Cuba announced Tuesday that it would move toward ending a two-tier national currency system widely criticized for creating a privileged class with access to a special peso.

The notice, published in Granma, the official Communist Party newspaper, was not unexpected: President Raul Castro had announced his support for such a plan in July. But the announcement Tuesday was short on details about how the country's leadership plans to unify the regular peso, which is worth pennies on the U.S. dollar, and the "convertible" peso, or CUC, which is pegged to the dollar.

The dual-currency system began in 1994 as Cuba opened to tourism to raise money after the collapse of the Soviet Union, but it generated resentment because most Cubans were paid in the less valuable peso. The convertible peso is used by tourists and Cubans who deal with them via services such as hotels and taxis and at stores that do not accept the regular peso.

"The problem is that most of the good things that Cubans want to have can't be bought with the [regular] Cuban peso," Jorge Duany, director of the Cuban Research Institute at Florida International University, said in a phone interview Tuesday. "It's very unpopular. Cubans everywhere on the island complain bitterly about the lack of access to certain stores that only sell items based on the convertible peso."

Philip Peters, president of the Cuba Research Center, noted on his blog that though the economic effect of the announcement was difficult to determine, the country has "a lot to gain" by ending the dual system.

"It creates two tiers of wage earners and distorts incentives in the labor market," Peters wrote. "In Cuban businesses, it creates an accounting fiction that favors imports [and] penalizes exports. And in general, it denies all actors in the economy the clear price signals that are necessary to make sound economic decisions."

"Fixing the currency," he said, " is only one part of a puzzle that also includes wage and salary policy, price policies in the state retail sector, and a decision on whether or not to allow state enterprises to import and export without prior permission from the government."

richard.fausset@latimes.com