Cuba Devalues Peso, Pegs it to U.S. Dollar

Source: CIGAR AFICIONADO, Cuba Devalues Peso, Pegs it to U.S. Dollar by David Savona
Posted: March 15, 2011

Cuba cut the value of the Cuban Convertible Peso by 8 percent yesterday, returning it to equal value with the U.S. dollar. The change, effective immediately, is meant to boost the Cuban economy, which depends heavily on income from tourists.

Cuban Convertible Pesos, also known as CUCs, are used solely in Cuba. They aren't traded freely on international markets, as are dollars, euros or yen, and their value is controlled by the Cuban government. It is the only currency that tourists can use in Cuba. (Cuban locals use a different currency, national Cuban pesos, or CUDs, which are worth about 25 times less than a CUC.)

Long pegged to the value of the U.S. dollar, in 2005 the Cuban government changed CUCs, putting them at 1.1 to the dollar. There is also a 10 percent fee people must pay when changing U.S. dollars into CUCs. The exchange fee remains after this devaluation.

The Central Bank of Cuba noted that the decision to return to parity with the dollar was based upon the woes of the Cuban economy, which has been "aggravated by the damage and losses provoked by the hurricanes of 2008, as well as the effects of the international economic crisis, characterized by much volatility on the monetary markets," said Ernesto Medina Villaveirán, minister-president of the Central Bank of Cuba, according to Granma, the official newspaper of Cuba's communist party.

Tourists were once able to spend U.S. dollars in Cuba, paying for cigars, meals in restaurants, cab fares and even hotel rooms with greenbacks. (Credit cards backed by U.S. banks cannot be used in Cuba.) Beginning in November 2004, Cuba no longer allowed dollars to be used for payment, moving exclusively to the CUC, which had been created ten years earlier.

CUCs come in many forms, including bills worth 1, 3, 5, 10, 20, 50 or 100 CUCs, as well as 1 and 2 CUC coins.

Travel to Cuba is far from cheap. A hotel room at one of Havana's premier hotels, such as the Melia Cohiba, is more than 100 CUCs per night. Lunch for two with beverages can be around 80 to 100 CUCs in a fine paladar, a half hour of computer use in the business center of a hotel runs about 10 CUCs, and all visitors must pay an exit tax of 25 CUCs.

The one thing in Cuba that is relatively inexpensive is a fine cigar. A diminutive Montecristo No. 5 costs about 3.60 CUCs, a Churchill-sized Cohiba Esplendido runs around 18 CUCs, and a Montecristo No. 2 pyramid is some 9.60 CUCs, or 240 CUCs for a box of 25.