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US dollar is going further in Cuba, as value of the convertible peso drops

A Cuban worker shows CUP (Cuban pesos) and CUC (Cuban convertible pesos) of different denominations in Havana on February 8, 2018.

ADALBERTO ROQUE/AFP/GETTY IMAGES/TNS

By MARIO J. PENTON | El Nuevo Herald | Published: December 7, 2019

(Tribune News Service) — When his mother in Cuba asked Guillermo Prieto to send his monthly aid in U.S. dollars instead of the convertible pesos known as CUCs, the Homestead, Fla., man thought it was to buy some appliance in the new government shops that accept only foreign currencies.

But he was stunned, Prieto said, when his 75-year-old mother told him she intended to sell the dollars on the black market and make a profit.

"I always sent her $100 with Western Union, but she said it's preferable that I send it with mules," he said, using Cuban slang for travelers who deliver goods and cash to the island. "Because on the street, she gets a better exchange rate."

The Cuban government recently reintroduced the U.S. dollar to the island's economy, hoping to capture more of the currency it desperately needs. It has opened shops that sell appliances and automotive parts only in dollars, previously only available through Cubans who traveled abroad and returned with those products for sale.

As a result, the value of the CUC, established in 1994 by the government as a dollar-like currency, has plunged by up to 30% on the black market. And those who receive remittances from the United States are therefore receiving more CUCs per dollar.

Cuba has two official currencies: the Cuban or national peso, and the CUC, which the government pegs at 97 CUC cents to the U.S. dollar. One CUC also equals 25 national pesos.

Most salaries are paid in national pesos, but most basic necessities are sold at CUC prices. In recent years, the government allowed both currencies for purchases in the state-owned stores known as "shops for collecting hard currencies," and announced plans to unify the national peso and CUC.

Prieto said that before the return of the U.S. dollar, he paid Western Union $115.99, including a $12.99 commission, to deliver 100 CUCs to his mother in Cuba. But by using "mules," he pays only $10 for each $100 he sends, and the money arrives in dollars.

Economist Emilio Morales, head of the Miami-based Cuba Consulting Group, said "the biggest loser" with the introduction of the dollar and resulting devaluation of the CUC has been the Cuban government.

"The Cuban government is not collecting the dollars it used to receive through CADECA (government currency exchange shops). People prefer to exchange them on the informal market," Morales said. "The dollars are staying in the hands of private people who later travel abroad to buy merchandise."

Cuba's economy is facing difficult times. The country is deep in foreign debt and lacks the hard currency reserves needed to make its payments, Morales said.

The government keeps the official exchange rate at 0.97 CUCs to the dollar. The CUC can be legally exchanged into dollars, but the government has closed dozens of CADECA shops and put a limit on bank withdrawals of $300 per person, he added.

He estimates that the government is suffering "losses in the millions," which will become visible in the medium and long term and further shrink its currency reserves, because the dollars entering the island are being exchanged in the informal market and not in the CADECA shops.

"These measures have been a strategic mistake by the government in an effort to immediately obtain dollars, without thinking about the structural changes required by the economy before taking that step," he added.

A recent report by Morales' company reflected the increase in remittances to the island, which hit $6.6 billion in 2018, including cash and merchandise. About 90% of the remittances were sent from the United States. Cash remittances alone soared from $1.45 billion in 2008 to $3.69 billion in 2018, Morales reported.

Claudia, a Cuban living in Miami who did not want to be further identified because of personal concerns, is one of the "mules" who carries merchandise and cash across the Straits of Florida. For her, the CUC's devaluation meant an increase in her cash deliveries.

"People are asking me for more cash shipments. I almost always have to travel with $5,000, which is the limit put in place by Cuba," she said.

Customs employees at the Jose Marti International Airport in Havana are some of her best clients, Claudia said. Some of them take advantage of their jobs, and contacts with tourists arriving and departing to exchange dollars for CUCs in the informal market.

"I go almost every week. When I get to the airport, they are already waiting for me," she said. "I hand over the cash and pick up the profits from the previous week. Then I distribute the packages to the addressees, and I return to Miami. Everything is legal."

The CUC's devaluation also has benefited Cubans who live abroad and travel to the island.

"Every year, I go to Ciego de Avila for 15 days to visit my mother and my mother-in-law. I came back from there one week ago, and did not change one single dollar at the airport," said Adrial Molina, a Cuban who has lived in Kendall for six years. "The money went much further, although there are so many shortages at the shops that it didn't do me much good."

Molina added that several privately owned restaurants in Ciego de Avila suggested he pay the bill with dollars at a "very favorable" exchange rate.

"People have a tremendous dollar fever. Many told me they were afraid they would eliminate the CUC suddenly or modify the exchange rate," he said. "It's not logical to think that one of those little Cuban government papers (CUCs) would have the same value as a dollar."

"It's worse than ever over there," he said. "You feel it in the air."

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