The problem of Cuba’s dual currency system has already been touched upon in numerous articles on this website, dealing with the negative effects that state-run companies bring to the table. My article will focus on a more common people’s approach.
When, how and why was the CUC and dual currency system invented?
It goes more or less like this: the CUC (Convertible Peso) began circulating in 1994, holding the same value as the USD, as a kind of parallel national hard currency to the CUP (Cuban Peso). It formed part of the measures that were taken to tackle the severe crisis Cuba suffered after the USSR collapsed, baptized the Special Period.
In the beginning, there wasn’t a fixed official exchange rate with the Cuban peso (CUP) for the general population. It started off on the black market at about 150 CUP (at least here in Cuba’s eastern provinces), and then it gradually fell until it was only 15 CUP, in less than a five-year period. That’s when the State intervened and fixed its value higher, at 25 CUP in the end.
The first hard-currency store in Oriente was opened in Santiago de Cuba, in what was called (until then) the “Fantasia” diplo-store, which previously was used to exchange consumer goods for gold, silver and platinum. Lines were extremely long with people coming from different provinces (it was meant to serve approximately 4 million inhabitants). In order to go inside, you had to first show your CUC beforehand and this began to become the only option people had because normal retail trade was already practically non-existent. Later, other stores (which were then rebaptised shoppings) slowly opened up, first, in every provincial capital, then in every municipality.
It was the government’s strategy to get their hands on hard currency from abroad, along with the economy opening up to tourism, US dollars no longer being penalized and remittances flowing in. They offered products which the country couldn’t buy or produce due to the Special Period, filling in the gaps in the normal regular peso CUP market.