Cuban Economy and Money

It is not impossible but it is difficult for the visitor to understand the Cuban economy. Government finances are shrouded in secrecy, and day-to-day life revolves around three different kinds of cash.

The main cash crops in Cuba are tobacco, sugar cane, and coffee. The government pays farmers a nominal amount for their crops and requires farmers to give up 90% of their crop at that price to the government. Farmers keep 10% to sell on the private market, as in selling handmade cigars to tourists who visit their farms.

The government produces brand-name cigars, rum, and coffee from its 90% and sells the products at market rates. The government’s income is spent on providing a monthly income to everyone, subsidizing essential food (for free) to everyone, and providing free medical care and free education (through graduate school) to every Cuban citizen living in Cuba. Are funds left over? Where do they go? Who knows?

Meanwhile, citizens get the equivalent of $25 (US) a month guaranteed income, but even with subsidized food, education, and health care, that is insufficient to live on . Hence the “la luch” or “luchendo” – the struggle for life – described elsewhere in the blog. Just about everyone has a side gig to make ends meet – interpreting for tourists, acting as guides, waiters or musicians. Everywhere you turn in Cuba you find small, very accomplished, combos beating out Afro-Cuban music. The pictures below show an old man posing beside his burro for tourists to take pictures and a street artist posing as a statue for the same purpose.

Cubans are paid on pesos. But most commerce in Cuba from visitors involves a second unit of currency, the CUC, which trades at 85% of the value of an American dollar. The third currency? The American dollar. Cuban’s are only too happy to accept American dollars.

How did this bizarre system of three currencies develop? As best we could determine, it seems that when the dollar was introduced into Cuba in the 1990s, inflation threatened to devalue the peso, since there was no gold standard against which the set the Cuban peso. So a new currency, the CUC, was developed and established at 85% of the value of an American dollar. Then the value of the peso was set against the CUC, at 25 pesos per CUC.  We think.

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