How to survive the uncertainty of monetary unification and inflation (or at least not to die in the attempt)

Cuba faces a unique economic dilemma. If there is one thing on which we all (or almost all) agree, it is that having two currencies today causes more harm than the a priori benefits it promised back in 1994, when the very poor economic situation in which our country found itself brought about the Cuban Convertible Peso (CUC).

Let’s put it in context. After the collapse of the socialist camp, Cuba lost its economic support. For the first time (and I am referring to the first time in its post-Columbian history) the island found itself alone before the world. Gross Domestic Product fell by more than 35% and trade was reduced by 75%. We had reached what we all know as the “Special Period.”

To this situation we must add that the State, responsible for the country’s workforce and the only employer at that time, made the decision to continue paying wages to its workers (who were not producing anything). We know the story, but just in case you don’t, it’s not difficult to conclude that, in an economy where there are hardly any imports, there is no production, and people continue to be paid the same, it’s normal for the currency to weaken because of inflation.

Now I will resume the rest of the story: in a desperate but necessary measure, on July 26, 1993, President Fidel Castro authorized remittances from abroad and decriminalized the U.S. dollar. The CUC was created under the promise that for every dollar in the Cuban economy there would be a CUC, thus at that time there were three currencies operating in our economy. In 2004, in view of the persecution against dollars coming from Cuba, as part of the U.S. blockade policy, the order was given to withdraw them from the economy and to impose a tax on their entry (but not to penalize their possession as before). The business sector was going in a different direction, with an exchange rate far removed from that of the private economy (the madness of 1 CUC = 1 CUP; which affects, among other things, the efficiency of import and export companies). The promise of one CUC for every dollar that entered the country was abandoned, making it almost impossible today to freely exchange currency.

Forgive the banality as I understand that I have omitted interesting situations from the story, but the goal is to get to the point, to the uncertainty that we face today, and propose how to try to survive it with as little damage as possible.

The Cuban government committed itself to maintaining the current exchange rate with respect to the CUP before each CUC in the banking system. This protects us from an eventual devaluation of the CUC due to its imminent death, but it does not assure us that the value of the CUP will not be affected by foreign exchange rates (of freely convertible currency, MLC), losing this real purchasing power. It’s here where my recommendations come into play:

• Buy and store non-perishable food. In this way we will be protecting ourselves not only from a possible dizzying rise in prices, but also from shortages and a lack of supplies and raw materials that affect production.
• Adjust prices, since it is preferable to lose a part of the market share, than to sustain monetary losses.
• Avoid accounts receivable. We cannot afford to charge less for our work than it is worth. The debt someone owes us today may be affected if payment is made in the future. They may pay us money that is worth much less at the time of collection.
• Don’t decapitalize. As is natural in countries like Cuba, many raw materials are obtained in MLC. The problem comes later, when selling our products in the internal market and not having the capacity to repurchase the hard currencies.
• If you have the possibility, invest in real estate, gold or art. During periods of uncertainty it is advisable to have durable goods that tend to increase in value over the years.

My most important recommendation is that you study and prepare yourself for this moment and for those to come, believe me this advice never fails.