Cuba - A case study in money

After a lengthy hiatus I am back on the blog with some thoughts from my recent holiday in Cuba. The first piece in this tantalising multi part series will be my thoughts on the Cuban monetary system.

Cuba has a dual currency system with Convertible Cuban Pesos (CUC) for tourists and Moneda Nacional (CUP) for Cubans or at least that is the basic theory. The idea behind this seems to be to create a convertible currency (which appears to be tied to the US dollar) for tourists to purchase whilst not distorting the basic Cuban monetary system.

£1 buys around 1.5CUC so it is a good proxy for the dollar. However 1CUC buys around 25CUP and an ordinary Cuban earns only around 400CUP a month on a government wage. Most things tourists pay for are priced in CUC; Hotels, coaches, tours, food in Paladars etc. Most items denominated in CUP are essential basic foods such as fruits, street foods, Cuban buses etc. However some double pricing also exists for instance some beaches or parks might charge 5CUC for entry to a tourist but only 5CUP to a Cuban. In some ways this seems pretty fair given the disparity in income between Cubans and tourists. This system is also a pretty clever way of ensuring tourists pay a higher price than they otherwise would to travel in Cuba although its still cheap relative to travel in Europe or America.

As a medium of exchange CUCs provide a brilliant case study in currency dynamics. They should send economics graduates here to study the dynamics of a basic money system. When you arrive in the airport you need to exchange your ton of hard currency cash (don't bother with cards or travellers cheques as generally they aren't accepted in Cuba) for some CUCs. Much like Disneyland money you exchange your hard currency for CUC and then the process begins of Cuba divorcing you from your CUC through various means; Taxis, hotels, casa particulares, food, tips and scams. So you handover your money and spend your CUCs on the various attractions of Cuba. Tourism must be the number one source of foreign exchange into Cuba.

The existence of the CUC and the payment of government employees (including doctors) in CUP creates huge distortions in the economy. A street hustler (Jintero) who can make just 1CUC a day from tourists will earn more than a doctor earns in a month. Getting paid in CUP and buying your groceries from local producers doesn't leave you totally impoverished until you need a pair of shoes, or some clothes, or some fuel or anything else imported into Cuba because imports reflect international market prices in CUC.

This is particularly obvious in the 'tiendas' which are government run stores full of imports, cuban soft drinks and Rum. You can buy fresh fruit for next to nothing in Cuba but a tetrapack of imported tropical fruit juice costs about $2.50. This is the same price as a 35cl bottle of Havana Club Rum. I have never paid more for the mixer than the spirit!

Since the collapse of the Soviet Union the country has moved increasingly to rely on tourism. Many of its industries closed as tourism provided the needed foreign exchange to import food, medicine and machinery. However with many people still paid in practically worthless CUP they can barely afford the imports which are now required due to the hollowing out of any domestic manufacturing. A new pair of shoes costs a months wages in CUP. Therefore its not hard to see why there are tales of Cuban doctors turning to prostitution to make ends meet and why those working with tourists form the Cuban middle class.

A couple of examples on the differences between CUC and CUP;

• In touristy towns like Trinidad we saw people offering bananas in the street for sale for 1-2CUC a hand! Doubtless you can buy a hand of bananas for say 5CUP so this represented a 5-10x markup on the price paid by the Cuban. Tourists being (a) stupid and (b) lazy would buy these netting these Cubans maybe a 10CUC for a hand of bananas. I cant blame the Cubans for trying it on but when you realise a guy can make 10x a doctors wage in a day arbitraging bananas you can see why the economy is such a mess.
• Outside Trinidad we visited the Iznaga estate which was once an important sugar producing area (dont go there it was the worst tourist trap we visited.) Inside the ruins the guides would demonstrate to the busloads of tourists how the cane was crushed traditionally to extract the juice of the cane. For 1 CUC you could sample the juice (2CUC with a spot of Rum). However with the help of some friends we discovered that at the base of the short road up to the tower where all the buses park there was a stall selling the cane juice fresh from an electric press to ordinary Cubans. We paid 1CUP for a glass. That is 1/25th of the price up the hill.

So as you get wise to the Cuban system you find various ways to pay a lot less money but still accommodation and transport is primarily in the CUC. This is why you find that staying in Casa Particulars (Cuban private B&Bs) you meet relatively well off Cubans as they have access to CUC. However they must also pay a fixed monthly tax in CUC to the government regardless of vacancy rates so its not all easy.

I should mention that tourists can exchange CUCs for CUP in the Cadeca exchange bureaus so as a tourist you can access goods in CUP but in general most of your costs except food bought on the street must be settled in CUC (Casa Particulares etc wont accept the equivalent in CUP). You are best paying for streetfood in CUP also its good to carry some CUP for tipping toilet attendants (rent seekers - the toilets are generally broken) and you can use it on local buses and some 'collectivo' taxies.

You can see the benefits your hard currency CUC purchases are helping ordinary Cubans at the micro economic level by giving them money by staying and eating at private homes. However you can also see that those hard currency reserves the government is building is supporting their repressive regime. In addition you can see the destructive impact of tourism on the economy in terms of the vast disparity between those who live in touristic areas and have a business and rural workers you see see outside of the tourist hot spots. Therefore I have never felt more of a tourist and an outsider anywhere as I have in Cuba.

...In the Next Installment; Cuban transport


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My advice if you do go to Cuba is don't stay in a resort and help line the governments pockets (the government owns at least 51% of all hotels) but stay with Cuban families in casas particulares as they are cheaper and have much better food. If you speak Spanish you can really start to understand what life is like in Cuba by talking with your families and their friends. In the resorts all you see is white sand and Cuban tokens; mojitos and cigars.