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Cubans give muted welcome to end of 'convertible peso' dual currency system

In this Aug. 30 file photo, a food vendor spreads out convertible pesos, known as CUCs - the two bills on the right - and regular Cuban pesos at her stand in a vegetable market in Havana, Cuba.AP / Ramon Espinosa

HAVANA - Cubans gave a cautious welcome Tuesday to plans to phase out the country’s confounding dual currency system as part of reforms aimed at fixing the island’s economy.

The beginning of the end of the twin system of domestic pesos (CUP) and "convertible” tourist pesos (CUC) - which are 25 times more valuable and are tied to the U.S. dollar - was announced in a government advisory, published in the official Granma newspaper.

"If this changes the economy then it is welcome," said Antonio Martinez , 32, a farmers’ market trader in Havana.

Silvia Rodriguez, 34, a cafeteria cashier, said: "I do not care about if it’s the peso or whatever. What interests me is if everything improves – my financial situation, that of my people, and that there be free movement of money."

The dual currency system has existed since 1994, after the collapse of the Soviet Union ended lucrative trade deals – forcing Cuba to open its economy to tourism while trying to preserve its centrally-planned ethos.

Workers are paid in domestic pesos, forcing professionals such as doctors and teachers to moonlight as cab drivers or private tutors to supplement their state salaries.

Tourist pesos are used for foreign trade, including imported electrical goods, and upscale restaurants. Neither currency is legal tender outside Cuba.

Many imported goods can only be bought in CUCs, creating a social divide between ordinary Cubans and those with access to the much more valuable currency.

Raul Castro has denounced the setup as a hindrance to the country's development since he took over from his brother in 2008. However, any changes bring the risk of high inflation.

"Cuba has been under pressure to reform for years, and this is a major change,” said Vicki Huddleston, a former U.S. diplomat who served as Principal Officer of the U.S. Interests Section in Havana for three years. “It will bring Cuba closer to the rest of the hemisphere in terms of being able to operate as a market basis, and of course its entire history is based on it not operating on a market basis.

 “In essence it means devaluation, affecting the value of pensions and remittances from overseas. It will be a difficult change to manage.”

The announcement said the government would give notice of any devaluation of the CUC, giving people time to convert their stockpiles.

A U.S.-made car, used as a private collective taxi is driven beside a billboard in Havana, September 30.Reuters / Desmond Boylan

It says the first step will be to retool the country's computerized accounting system and records-keeping. Some four million state workers on the island – total population just over 11 million - will continue to be paid in Cuban domestic pesos.

Edilia Nava, 61, an accountant in Havana, said the changes were “necessary” and that some businesses have already begun to prepare for changes to the value of the tourist peso (CUC). “However, it appears that [shops that use the CUC] aren’t going away, so we’ll have to see how prices settle, and what the impact is on people.”

Juan Molina, 45, a gas station attendant, said: "It is about time this rumor finally became true. I like the idea that our ordinary national currency will be used everywhere and that we will not have to change it into CUC to buy things. I support the change, but we must check that prices do not rise while wages remain as low as they are.”

Madelaine, 27, a primary school teacher who didn’t want to give her last name because she is a government employee, said: "I think it is good that the Cuban peso be the one that matters, although for me what is important is that my salary have real value, and that it allows me to live, which until now it does not. Let’s see.”

The government has already begun pricing more goods and services in pesos and collecting taxes in pesos, Reuters reported.

Since 1968, when Fidel Castro nationalized all industries, Cuba’s centralized government has dominated all commerce on the island, big and small – from the corner bakery, repair shops and shoemakers to the nickel mines, electric generation and steel works.

Cuba provides free healthcare and education, but its economy is hampered inefficiencies and a longstanding U.S. trade embargo. Average state salaries are the equivalent of $20 a month.

Reuters contributed to this report. Orlando Matos reported from Havana. Mary Murray and Alastair Jamieson reported from New York.