The Cuban government announced that it will phase out the convertible Cuban peso. What is the convertible Cuban peso? This peso can only be exchanged for hard currency and can only be used in special exchange stores where hard-to-find items and luxury goods are found. This reminds me of the Soviet beriozka (exchange stores) when I visited the former Soviet Union and the Chinese foreign exchange certificates I used when I visited the friendship stores in China. Like the former Soviet Union and China, Cuba had set up a two currency system. The convertible peso is for those non-Cuban citizens, and yes Cuban citizens, who have hard currency and want to buy things they cannot get elsewhere in Cuba. This was of course part of the antiquated “socialist system.”

                              But it created a society of haves and have-nots. Those Cubans who have been able to obtain U.S. dollars, Canadian dollars and Euros can exchange these for convertible pesos. Most Cubans are paid in the worthless regular Cuban peso which they must use to buy whatever (leaving them with a lot of things beyond their reach). The whole system was prone to fraud and seriously limited what Cubans can do for making a living. If they are paid in worthless currency, what is the incentive to buy anything beyond basic necessities? Even then, many Cubans are having trouble getting even basic necessities. Only a small fraction of the Cuban population could ever get any goods they desire with the convertible peso.

                              This resentment, and the fact that the convertible peso is actually holding back the introduction of the free market, have forced the Cuban government to phase out the convertible peso. China phased out its foreign exchange certificates in the 1990’s for this reason, and Cuba is doing the same. The one other thing that Cuba will have to do is let the Cuban peso eventually be freely exchanged in the free market so that it will have any value at all. It will mean that there will be inflation, but there is no other way. Likewise, Cubans should be allowed to hold on to and freely exchange hard currency–be they U.S. dollars, Canadian dollars, or Euros–so that commerce can be carried out. But the convertible Cuban peso must go, and at least for the Cuban people such a hated thing will finally go.