Cuba: From "Dollarization" to "Euroization" or "Peso Reconsolidation"?

Abstract

Following Cuba’s de-penalization, of the use of the dollar in August 1993, its role expanded rapidly. It now may be a more significant component of the overall money supply than the old peso. This generates some advantages but also contributes to some problems. The Government of Cuba has considered the advisability of switching to the Euro, and more important, consolidating the role of the peso. A forced switch to the Euro would produce many more problems than it resolved. In the longer term, it would be unwise to adopt a currency that was economically and geo-economically inappropriate for Cuba, given the inevitability of a normalization of relations with the United States at some time in the future. The Central Bank of Cuba does not now appear to be pursuing the Euro-ization option. A more advantageous objective would be to restore the Cuban peso as a strong and convertible currency. This would involve unifying the bifurcated economic structure, the dual monetary system and the dual exchange rate system. This would be difficult to implement. It appears that while the Cuban government is studying the matter, it does not yet appear to be moving in this direction in a concerted way. In time, however, an appropriate mix of exchange rate, monetary, fiscal, and income or wage and salary policies should be able to support a rehabilitation of the Cuban peso. This essay explores possible processes for strengthening the role of the peso in Cuba’s monetary system.