We’ve written a previous blog on the currencies of socialism and how they don’t quite work the same as those of capitalist countries. One of the flagship ‘socialist currency’ countries is Cuba, with its unique dual Cuban currency system of CUP and CUC.
What is the currency of Cuba?
The two types of Cuban currency are both pesos. The ‘peso’ as a monetary unit has its origins in Imperial Spain and is found throughout many former Spanish colonies – for example, the currency of the Philippines is the PHP, or Philippines peso.
Cuba’s currency was the peso pre-revolution, and was still the peso post-revolution. The difference is that it stopped being a ‘hard’ currency and became a ‘soft’ one. What’s the difference? We once again refer you to our previous blog on the matter!
Cuba’s ‘hard’ currency was, for many years, the US dollar. This means that they used the US dollar on the international market for purchasing oil, computers, etc. etc. This was all well and dandy for a while, but the US had a trade embargo in place on Cuba, which meant that they couldn’t get dollars directly from the source and had to get them from third parties. And what happens when you have to use middlemen? You have to pay the middleman his fee. This meant Cuba lost 10% every time they used dollars.
Cuban currency and the dual-currency system
This brings us to Cuba’s dual-currency system: the Cuban peso (‘CUP’) and the Cuban convertible peso (‘CUC’). The CUP is the ‘soft’ currency that Cubans get paid in and the money they generally spend. The CUP is around 25:1 against the US dollar.
The second currency, the CUC, is Cuba’s hard currency and is fixed 1:1 against the US dollar. But why does this currency even exist? Easy. This is the currency that foreigners must purchase and spend in Cuba, and replaced the US dollar as the ‘hard’ currency of Cuba. When converting US dollars into CUC, the buyer pays a 10% surcharge, effectively passing the 10% loss onto the tourists rather than the Cuban economy.
TL;DR – Cuba has one currency for locals and one for foreigners. The foreign one is basically there so they can dodge US embargo restrictions. Simple enough, right?