As the Cuban state has experienced a growth in demand for wages, social security, and subsidies , there has been a severe shortage of imported products, food, and other goods. Cubans often had to stand in long lines to procure a limited supply of food products. Many necessary items could not be obtained with pesos and were available only on the black market with U.S. dollars. Inflation resulted because the government kept printing more pesos though there were few goods available. In order to restore the value of the peso, a program was initiated to reduce the excessive amount of money in circulation. As part of this program, the government increased the prices of many consumer goods and services, enacted a new tax law, and ended subsidies to businesses that were not viable (economically successful). While these measures increased the difficulty of daily living for the average Cuban, they have gradually restored the value of the peso. Though the official exchange rate of the Cuban peso to the U.S. dollar is 1:1, the real exchange rate within the country has dropped from 120 pesos to the dollar in 1994 to 20 to the dollar in 1998.
Before 1993, the U.S. dollar, although illegal, was used widely on the black market. In 1993, the dollar was legalized and Casas de Cambio, (houses of exchange) were established to exchange pesos and dollars. Cuba has created a dual system—a dollar economy and a peso economy—that has certain places where pesos can be used and others where dollars only are accepted.
|Exchange rates: Cuba|
|Cuban pesos per US$1|
|Note: Nonconvertible, official rate, for international transactions, pegged to the US dollar; convertible peso sold for domestic use at a rate of 1.00 US dollar per 22 pesos by the Government of Cuba (January 2001).|
|SOURCE: CIA World Factbook 2001 [ONLINE].|
Since 1993, foreign banks had been allowed to do business in Cuba to supply such financial services as insurance, foreign commercial investments, and savings accounts. In 1997, a new central bank, the Banco Central de Cuba, was created to supervise and regulate Cuba's growing banking sector. The old bank, Banco Nacional de Cuba, had performed both the roles of central bank and state-owned commercial bank, but would now operate only as a commercial bank. Nevertheless, a very narrow sector of the Cuban population requires banking services. Very few people earn enough money to be able to invest or save. Those who do are able to earn dollars or receive money from family members in other countries. Cuba has no stock exchange.