CUC – Cuban Convertible Peso to be eradicated by Cuban Government

Thecubablog.com:

n another sign that Cuba´s economy is walking a financial tight rope the government is set to abolish the CUC or Cuban Convertible Peso by March 2010.

Introduced as the brain child of Fidel Castro in a measure to eradicate the U.S Dollar and also reduce the value of remittances, the CUC was an effective method to acquire up to 20% of all foreign currencies entering Cuba by reducing their value against the printed currency in addition to implementing a 10% penalty specifically against the USD from where most remittances emanate.

The CUC is pegged at a fixed 8% more valuable than a USD despite have no international exchange value. The printed note, introduced purely to cream this 8% plus a further 10% in government imposed penalties from remittances sent from the US directly into government coffers. For a better explanation of this see our article from August 12th 2009.

The plan is to abolish the CUC in order to oblige all of the current currencies holders to declare their holdings and to “start a fresh” with yet another exchange rate increase, this time set to be over 60% against all major currencies. By using this strategy Cuba will be able to re-price and re-jig its economy and essentially eradicate its debt with the currencies holders. A more sinister side to this is the blocked holdings of thousands of foreign businesses and individuals who hold accounts in Cuba and who will find themselves with bank accounts holding an extinct currency and whose exchange rate for the “new-old” currency will wipe out up to 95% of their supposed deposits overnight.

How does the Cuban Government plan to do this?

Well, the plan is to reuse the Cuban Peso, print billions of new notes and then peg the Cuban Peso (used today purely to pay wages and whose value today is 24 Cuban Pesos to the USD) 1 to 1 against the CUC. This would devalue Cuba´s debt to CUC currency holders by 60-95% leaving them with a currency whose use and value is only symbolic but can be explained “as a benefit” by proclaiming the Cuban Pesos increased value and thus symbolically increase salary payments to Cuban people. It is unsure if as a token gesture the government will verbally modify the Cuban Pesos value to slightly ease the blow to those holding the currency today.

What does this mean to foreigners, debt holders and those holding a rumored 300 million CUC (260 million USD) in blocked bank accounts?

Quite simply, these accounts and the currency in them will become obsolete and be replaced by the Cuban Peso at anything from 5 to 20 cents on the dollar. It will also mean that outstanding unpaid bills, contracts for imported goods and essentially the whole foreign exchange will be devalued by similar percentages.

The plan to eradicate the CUC will be heralded as a move to increase the values of an every day Cubans Salary and make the Cuban Peso “more valuable” in order to gain national support for the move which will be greeted with open arms by those Cubans being paid 300-400 Cuban pesos per month but, as any economist knows, the value of a currency is only that related to its ability to buy products. By pegging the Cuban Peso at say 8 Cuban pesos to one dollar this would achieve two objectives. The first is that Cuban salaries will technically be higher meaning instead of earning an equivalent of 10 USD per month Cuban´s who work will have about 60% more buying power. The second is that those holding the CUC today, essentially those with remittance savings and the aforementioned foreign account holders will pay for this stimulus by losing 60% of their assets. Assets touted today to be over 1 billion CUC or 970 million USD which the day after will represent one third of its value.

The date this is set to take place is obviously a closely guarded secret to obvert a mass exodus from the CUC but those with the blocked accounts can only sit and watch their money evaporate overnight.

www.particularcuba.com – Cuba unleashed

Advertisements

About Particular Cuba
Particular Cuba organizes travel to Cuba. Hotel booking, car rental, package tours, excursions, flights to Cuba.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: