The Head of Cuba’s Permanent Commission for the Implementation of the Guidelines (lineamientos), Marino Murillo Jorge, has said that the US Dollar exchange rate to the Cuban Peso (CUP) will be fixed when the country unifies its dual currency system (see Cuba Briefing 19 October 2020).
He said, however, that if over time business does not respond to the new incentives that Government is introducing, this may change.
Providing Cubans with more detail on how the process of currency unification will work, he told viewers of the flagship television Programme Mesa Redonda that ‘in a first stage’ the exchange rate in Cuba will be fixed, above all ‘due to the intention of controlling the increase in wholesale prices’.
In a lengthy statement, subsequently published in Cubadebate, he said that if progress was not made ‘another type of exchange rate (policy)’ may need to be implemented .
“That means that future devaluations would have to be made, but at first, hoping that the business system, above all, responds to what we are doing, we will stick with a fixed exchange rate”, he told Cubans. “We do not know how long it will be necessary to maintain a fixed exchange rate. We hope that the business system will be strengthened and respond to the needs of the country”, Murillo said.
In his remarks he assured Cubans that the exchange rate in force before the measure is introduced will be respected, while reaffirming that only the CUP, the domestic peso, would remain in circulation. Whatever the new exchange rate, Cubans will be able to exchange what they hold at the current exchange rate of CUP24 to the US$ to CUC1, he told viewers. In the case of the business sector, accounts in CUC will be converted at the rate of CUP1 to US$I, maintaining their current value. He also said that when the process is complete there will be the possibility of obtaining MLC (moneda libre convertible) depending on the limitations regarding the availability of foreign exchange.
Murillo said that the exchange unification will not be a lengthy process and will imply a significant devaluation.
To address this, he said, the country’s salary fund will rise 4.9 times, social security will do so by five times, and social assistance will increasingly depend on the number of vulnerable groups that have to be helped. “The aspiration”, he said, is that all “employees are in better conditions than where they started from”.
“If the dynamic of wage growth is higher than that of price increases, then those of us who work with the State will be in a better position. That is another of the objectives of the ordinance ”, he commented.
In a presentation that mixed economic theory with practical explanations as to why the measures were required, he said that devaluing the currency and raising wages is synonymous with price growth, which means inflation. The issue is how long it takes for the increase in wholesale prices to be reflected by retailers. “Regardless of market signals, the very characteristics of the economy allow creating conditions so that this does not happen”, he said.
Meanwhile the Cuban media have continued to reassure Cubans that their savings in any currency will remain safe, reiterating a promise made by President Díaz-Canel that the Cuban State will guarantee deposits in banks, as well as cash in CUP, CUC or MLC ( freely convertible currency).
The country’s official media said that once the elimination of the CUC from circulation has occurred, citizens will have an expected period of no less than six months to exchange the amounts they hold for CUP or to spend them in stores, receiving their change as at present in CUP.
They reiterated that CUPs, whether they are being held personally or in the banks, will maintain their current exchange value. “It is not necessary to run to the banks for fear that their value will be affected,” they quoted Murillo as saying.
At the conclusion of the Round Table broadcast Murillo acknowledged that some companies will face losses because of the changes being made, but said that entities that substitute imports and have efficient economic performance, will benefit. There was a need, he said, “to create wealth to achieve prosperity”.
“These measures are for the good of all. Those of us who work with the State will be grateful for the salary increase and (know) that work is the main source of income. It will be difficult to live without working, but in the midst of this context we will give all the support to the vulnerable and less fit to do so. The monetary order will generate important benefits for all”, he concluded.
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