
The Cuban Money Crisis - fitzwatermellow
http://www.bloomberg.com/news/features/2015-04-01/cuba-s-new-money
======
graeme
I lived in Cuba. The two currencies, at a consumer level, was less significant
than it was made out to be. It was very, very easy for anyone to trade CP for
CUC at a rate of 24 to one.

The real issue, for consumers, is that they were given almost no money. People
would earn something like 480 CP per month. If you were doing well, you had
access to another source of income (foreign remittance, black/grey market,
tourists, etc)

But for consumers who did have enough money, it was very easy to convert back
and forth. Everyone had stocks of both CP and CUC on hand and used them as
needed.

Of course, people would complain "CP is worth nothing, this is a problem!",
but effectively the real issue is that salaries were nothing. People wouldn't
have been happier receiving 15 CUC per month.

Where the real issues happened was at the level of state enterprises. I worked
with an NGO working with agriculture. Capital investments were in CUC. Yet
_enterprises_ were forbidden from using CP earnings to finance CUC purchases.
IIRC, enterprises had to balance their budgets in both currencies. This led to
major inefficiencies.

Note: 15 CUC is a pittance. The way people survived was through the other
benefits of the state. Ration cards, subsidies, etc. I don't really know how
that worked. People certainly were very poor, but not as poor as "15 CUC"
sounds.

~~~
graeme
Note: the comment above applies to the situation pre the changes they're
making now. I have no info on what's going on now.

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crazy1van
Absolutely fascinating. I'm sure I'm biased by my own philosophy, but this
seems to be a good reminder that for all the flaws in capitalist economies, a
centrally planned economy really just doesn't function. Also a good reminder
that strong individuals can adapt with creative ideas that will always be one
step ahead of the central planners.

~~~
delackner
In all the negativity of the article, you could easily miss the fact that Cuba
has higher life expectancy than all the countries you mention except Chile,
and lower violent crime rates by far, universal health care, and universal
education.

They also have suffered 50 years of a trade embargo by their main natural
customer (they were a huge Sugar exporter to the United States before we cut
them off).

~~~
mc32
Why does not trading with one country have such a negative effect on Cuba? I
dont think if Japan were unable to trade with Russia if would find itself in
the same predicament.

They have Europe and all of their natural" trading partners in Latin America.

The us is not the only place they can sell sugar tobacco and bananas. Also why
not buy cars from europe or Japan etc? Why must it be american cars?

~~~
dragonwriter
> Why does not trading with one country have such a negative effect on Cuba?

Because like much of the Carribean, one of the prime industries in Cuba prior
to the embargo was tourism, and distance is a factor in tourism, and the main
source of tourists with money to spend that would travel to Cuba in the
absence of the embargo is the United States.

And, perhaps most importantly, because as big of a real effect that it has,
those clear real effects that are hard to quantify exactly provide a
convenient and plausible cover for any harms that are really due to the
economic policies of the government.

> The us is not the only place they can sell sugar tobacco and bananas.

No, its just one of the places (and the most affluent one) that they have the
best position compared to other sources for doing so (without the embargo)
because of transport cost per unit of goods.

> Also why not buy cars from europe or Japan etc? Why must it be american
> cars?

As the article here notes, those with the money to afford it are buying cars
from elsewhere (Korea and China are mentioned specifically.)

~~~
rgbrenner
_Because like much of the Carribean, one of the prime industries in Cuba prior
to the embargo was tourism, and distance is a factor in tourism_

There are 550m people in south america, central america, and mexico with a
combined $6.5 trillion GDP.

If Cuba is unable to convince any of the 550m people near them to visit, maybe
it's not a tourist attraction and they should find something else to do.

~~~
dragonwriter
Actually, lots of them do. Its still a lot less money coming in from when the
same people did and it was a popular destination with much wealthier US
tourists.

I also think you completely missed the second (original, not quoted) paragraph
in the past you responded too.

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brownbat
The parallels to other socialist countries are interesting:
[http://en.wikipedia.org/wiki/North_Korean_won#History](http://en.wikipedia.org/wiki/North_Korean_won#History)

In the 80s, North Korea issued separate types of "foreign exchange
certificates" based on whether you were from a socialist or a capitalist
country. Andrew Holloway describes the arcane system in "A Year in Pyongyang."
Local currency could buy a few simple things. The red won used by visitors
from GDR or USSR could buy substantially more, but the blue won from
capitalist countries was at a premium and allowed access to the best shops for
tourists.

It reflects the awkward North Korean currency paradox: a hatred for the
capitalist West but a deep need for Western capital.

It's fascinating and frustrating to me how much more there is to unwind from
the Cold War. Lingering soviet satellites like Cuba, North Korea, Belarus,
maybe Vietnam... all very different situations, but each has to grapple with
its own basket of leftover problems from that era.

Hopefully Cuba will prove that softening relations provides a way out of some
of these dilemmas.

~~~
digi_owl
I wonder how much of this came out of the USD being the international trading
currency, thanks to the Bretton Woods system.

~~~
brownbat
It'd be particularly ironic if Harry Dexter White nearly single handedly won
the Cold War for the US while spying for the Russians.
[http://en.wikipedia.org/wiki/Harry_Dexter_White](http://en.wikipedia.org/wiki/Harry_Dexter_White)

But you're right, I don't think it's completely far fetched.

On the other hand Bretton Woods probably wouldn't have had the same effect
with just any global currency, the US did have a few perks (intact
infrastructure, great mix of labor and capital, rising consumer class,
demographic dividend, etc.)

~~~
digi_owl
It may have had an effect in the long run, but i think that in the short run
the Marshall plan did more by getting Europe back on its collective feet.

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nikanj
Looks like in a few short years we'll see another struggle of inexperienced
politicians vs international sharks.

Cue technically legal schemes, exchange rate manipulation, real estate bubble
and the other fun things we've seen lately in Iceland, Greece etc.

I wish to remain optimistic, but I don't believe the Cuban government can
match the level of cunning and expertise of e.g. Goldman Sachs.

~~~
digi_owl
Given that Cuba is "communist" i expect less Iceland and more 90s Russia...

[https://en.wikipedia.org/wiki/The_Shock_Doctrine](https://en.wikipedia.org/wiki/The_Shock_Doctrine)

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krebby
The dual currency system is fascinating. When I was there a few years ago
almost all of the local business exclusively took CUP, although a few
vegetable or meat markets would accept CUC and give CUP in change.

As an American tourist (with a French bank account), we were restricted to
taking out CUC exclusively at ATMs, and most tourist-facing places would
accept only CUC from us (though a few of the paladares and casa particulares
preferred USD). The National Museum for the Arts in Havana, for instance,
charged the same price in CUC as CUP but only accepted CUC from us (25x the
"locals rate").

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falsestprophet
Is it very difficult for Cubans to move to Argentina, Chile, or Mexico? As
troubled as some of those places are, they seem like paradise relative to
Cuba.

~~~
maceo
It was very difficult until recently and remains so. But you're wrong to
assume that life for the average person is any better in those countries than
it is in Cuba. The UN's Human Development Index has Cuba as the 2nd most
developed country in Latin America (behind Chile).

[http://en.wikipedia.org/wiki/Human_Development_Index](http://en.wikipedia.org/wiki/Human_Development_Index)

~~~
adventured
The UN's HDI is as fraudulent as pretending PPP GDP is a good way to judge
that someone in western China earning $1,000 / month is as well off as someone
in Sweden earning $8,000.

It fails to account for a vast number of things that are critically important.

The notion of scoring high on the human development index while living under
an extremely repressive dictatorship is more than enough to completely
discredit it. Equivalent to the UN allowing Saudi Arabia on the human rights
council.

People that have never experienced any meaningful freedom of speech, press or
ideas - can have a high HDI? I think that's inherently impossible. What's the
value of an education that occurs in the very narrow box of a dictatorship
that doesn't allow for freedom of expression, for competing ideas, etc? I say
it's worth very little, and it's a cruel joke to rank Cuba so high.

How can anyone properly score Cuba's healthcare system when it almost entirely
lacks transparency?

[http://en.wikipedia.org/wiki/Health_care_in_Cuba#Criticism](http://en.wikipedia.org/wiki/Health_care_in_Cuba#Criticism)

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guard-of-terra
Whoa, this looks painfully like 1991 Russian money reform but more devastating
(however I expect cuban money to fair much better than russian rouble).

"Normalization of relations with the U.S." is to be expected after Russia
wrote off multi-billion-dollar Cuban debts. Who wins? Cuba a lot, USA a bit.
Who won't get anything? Same side that never got any good deals in the last
hundred years.

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maged
I wonder if tourist places will be able to keep overcharging in CUPs. I think
it's a lot easier to sell a drink at 5 CUCs than at 100 CUPs.

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brownbat
Radiolab just had a story on another aspect of Cuban life most outsiders might
not know about, "Los Frikis," metalheads and rockers in Cuba:

[http://www.radiolab.org/story/los-frikis/](http://www.radiolab.org/story/los-
frikis/)

------
maceo
The 2 currency system is a mess. The fact that Cuba is abandoning it after 20
years of failure should serve as a warning to the Greek leftists who want
SYRIZA to leave the Euro and adopt a 2 currency system.

~~~
krschultz
Those two situations are not comparable at all. SYRIZA wants a separate
currency specifically so it will become weaker, allowing their country to be
more competitive in the global market than if it was still on the Euro.

Cuba is a different situation. There was no flow of foreign currency in
exchange for Cuban pesos, so they are worthless.

A closer analog to Greece are all of the south east asian countries that have
their own currency, but it is weaker than the dollar & euro. Those seem to be
working just fine.

~~~
maceo
First, SYRIZA doesn't want a separate currency, only the most radical members
do. And their rationale has nothing to do with being competitive in the global
market. Its widely described by their leadership as a dreaded last resort if
its creditors continue to be unrelenting and force a default.

