With amateur artists selling their work in tiny galleries and streetside displays, musicians peddling CDs and street vendors selling knick-knacks and handicrafts throughout Habana Vieja, it’s easy to spend money in Cuba. But it’s made somewhat complicated by a dual-currency system that keeps visitors on their toes. The original legal tender is the Cuban peso (or CUP), which is also called the “national peso” or moneda nacional. The convertible Cuban peso (or CUC) is simultaneously in circulation and, in theory, is the currency used exclusively for commerce with visitors to the country, as well as for many non-essential goods and services. Neither currency is available outside of Cuba, nor are they allowed to fluctuate with the world markets. One CUC (which pegged to the US dollar) equals 24 CUPs, so it pays to be sure you’re negotiating with a merchant for a price in the same currency before reaching into your wallet. And even then, be sure to check your coins carefully—CUPs and CUCs look all-to-similar to the unaccustomed eye.
So what does the dual currency mean for the average Cuban? Cubans receive the majority of their government wages in CUPs and can use this money to pay for bus fares, some services and staples not covered by their government ration card. But CUCs pay for the rest: supermarkets, hotels, most restaurants, cell phone services, home appliances, school supplies and anything not subsidized by the government. As a result, it comes as no surprise that jobs in the tourism industry, where tipping in CUCs is common (and thus waiters and taxi drivers can potentially earn many times more than government-employed doctors), are in high demand.
The social imbalances brought about by this dual-currency system are problematic, but its days are numbered. As of October 2013, Raúl Castro (Cuba’s current president), announced plans to phase out the CUC in the coming years and return to a single-peso system. How that plan plays out in real time remains to be seen, but many believe it’s a step in the right—and certainly less complicated—direction.
Some Historical Background on Cuban Currency
After the Cuban Revolution in 1959, the close economic ties between the United States and Cuba quickly deteriorated. Fidel Castro nationalized all US investments in Cuba and the United States enforced strict embargo regulations that have remained in place until present day. When diplomatic relations effectively ended between the neighboring countries, Castro looked to the Soviet Union as a major trading partner. In exchange for sugar, the USSR offered generous subsidies and trade agreements that provided machinery, crude oil and technological instruction.
However, Cuba’s focus on sugar production and its export meant funds and resources were diverted from the development of local industries and food production. A precarious situation evolved in which Cuba found itself dependent on its Soviet allies for basic necessities. This issue came to a head in the late 1980’s when communist governments in Eastern Europe began to falter. The Soviet Union significantly reduced trade and financial aid to Cuba, throwing the island nation into a profound economic crisis. Transportation, basic goods and utilities, food and clothing became scarcer and more expensive.
In 1992, as Cuba was reeling from the collapse of the Soviet Union and in desperate need of cash, Fidel Castro decided to allow Cubans to buy foreign imports of consumer goods at state-run “dollar stores” that accepted payment solely in US dollars. In a place of meager state-mandated salaries and heavily rationed provisions, this was a luxury for Cuban nationals who had access to dollars through working internationally or from relatives abroad. And after years of isolation, Castro once again opened Cuba’s doors to tourism and even some foreign investment as a way to bring in hard currency.
These concessions brought greenbacks into the state coffers, which is what the government urgently needed to prevent the country’s economy from imploding. However, tighter US sanctions imposed in 2004 caused Castro to have a change of heart. He declared that the US dollars were to be officially removed from circulation and replaced by the Cuban convertible peso.