Latin American Politics and Society, Summer 2002 v44 i2 p99(26)

Cuba: from "dollarization" to "euroization" or "peso reconsolidation"? Archibald R.M. Ritter; Nicholas Rowe.

Full Text: COPYRIGHT 2002 University of Miami, International and Comparative Studies

ABSTRACT

Since its "depenalization" in 1993, the U.S. dollar has become possibly a more significant component of Cuba's money supply than the old peso. What are the alternatives? The euro seems inappropriate, given the inevitability of eventual normalization of relations with the United States. More advantageous would be to restore the Cuban peso, though this would involve unifying the bifurcated economic structure and the dual monetary and exchange rate systems. The Cuban government has yet to announce its plans. This study argues that an appropriate mix of exchange rate, monetary, fiscal, and income or wage and salary policies should support a rehabilitation of the Cuban peso.

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Cuba is the only country where people earn one currency--pesos--from their work, but must have another--the dollar--to survive.

Popular Cuban Saying

I believe that in the future, it will never be necessary again to ban the possession of dollars or other foreign currencies, but its free circulation for the payment of many goods and services will only last for as long as the interests of the Revolution make it advisable. Therefore we are not concerned about the famous phrase "the dollarization of the economy." We know very well what we are doing.

President Fidel Castro, June 2000

In August 1993, the government of Cuba "depenalized" the possession of U.S. dollars by Cuban citizens, following more than three decades in which holding U.S. dollars was illegal. It also permitted family remittances to be sent to Cuba from relatives in the "diaspora" and to be received by family members in Cuba. This resurrected the former underground market for dollar exchange, opened the floodgates for dollars from Cubans in exile, and rapidly expanded the dollar economy.

These changes, in turn, generated some indispensable positive effects on the economy in general, such as large increases in available foreign exchange from remittances and from tourism earnings. They also, however, contributed to a number of harmful economic and social consequences, which have not yet been managed effectively. Instead of confronting the difficult task of strengthening the use of the Cuban peso in the domestic economy, the government appears ready to continue with the U.S. dollar, after flirting with the idea of replacing it with the more politically acceptable euro.

The objective of this essay is to analyze the process of dollarization in the Cuban economy, focusing on the forces that have propelled it, its economic and social impact, and the official policy response so far. It assesses the desirability of substituting the euro for the dollar. Its basic argument is that a forced switch to the euro from the dollar would probably generate more problems than it would resolve, regardless of its political attractiveness to the Cuban leadership. A preferable objective would be to reestablish and reconsolidate the position of the peso in the Cuban economy. This study suggests a basic approach to that process.

The Cuban economy is "dollarized" in an informal but also quasi-official manner. The country's stock of U.S. dollars is undoubtedly high, although its true magnitude is unknown. The dollar is a major "medium of exchange" and "unit of account." It also is probably the principal "store of value" for Cuban citizens, a refuge for financial savings amid the country's economic meltdown and the peso's loss of purchasing power. Dollars are required for some transactions by Cuban citizens with the government itself (exit permits, passports, medical tests for exit permits) and are the currency in which some taxes are levied. State enterprises, moreover, pay income supplements in U.S. dollars to approximately 1.08 million workers in a number of sectors of the Cuban economy (CEPAL 2000b, 8.).

Most Cubans hold dollars, along with pesos, for use in day-to-day transactions. Many individuals use one or the other interchangeably. The use of the dollar is therefore definitely more than informal. Also in circulation is a so-called convertible peso, issued by the Central Bank, which is also used interchangeably with the U.S. dollar. It is an attempt by the government, successful so far, to capture some of the seigniorage associated with the circulation of the U.S. dollar and accruing to the U.S. government. (In the mid-1990s, coupons, or bonos, also were distributed to workers in some sectors, such as sugar, permitting them to purchase imported products at prices below those in the dollar stores. The coupons therefore had a quasi-monetary function, though they were not part of the formal money supply.)

Cuba thus has, in effect, two general economies, a dollar economy and a peso economy, with significant segmentation and overlap between them. There are two exchange rates between the dollar and the peso, both essentially "official," but for different purposes and types of transactions. The "official" official rate, mainly for international trade, is fixed at par: US$1.00 = Cuban Peso 1.00. The quasi-official or "extra-official" rate, which is the relevant rate for Cuban citizens, varied around US$1 = CUP 20-22 during the period 1998-2001.

This dual system makes an accurate analysis of the Cuban monetary system, and indeed the Cuban economy in general, all but impossible. The dual currency and double exchange rate complications apparently are not treated transparently in information presented publicly on inflation, the value of the money supply, the government budget, or the national accounts. (1) Information is presented only in pesos, with any conversion of dollars done at an unspecified exchange rate (see, for example, Banco Central de Cuba 2000). The Central Bank undoubtedly tracks carefully the circulation of dollars; the Ministry of Finance officially taxes dollar expenditures and some dollar incomes. Individual enterprises and some institutions, such as universities, arbitrage between the two currencies and keep two budgets and sets of books, one in dollars and the other in pesos.

ANTECEDENTS TO DOLLARIZATION

The use of the dollar in Cuba has long and strong precedents in the twentieth century. Following the War of Independence, the dollar was proclaimed as the sole currency in 1898, replacing the Spanish and other currencies previously in use. It remained this way until 1914, when the Cuban government acquired the right to mint coins, though still relying on U.S. paper currency. In 1934, the Cuban government began issuing paper currency, which circulated with the U.S. dollar (Comision de Asuntos Cubanos 1935, chap. 14).

In time the peso came to predominate, but the U.S. dollar continued to have a strong presence. For example, the "Truslow Mission" of the International Bank for Reconstruction and Development estimated (1951, 545) that the public's holdings of U.S. dollars in 1950 amounted to 86.6 percent of the total peso currency in circulation. Dollar holdings were also estimated at 28.0 percent of the total peso money supply, defined to include demand and savings deposits. Despite these large dollar holdings, however, the peso predominated in the domestic economy.

Following the radicalization of the revolution and the diplomatic and economic rupture with the United States, private ownership and circulation of the U.S. dollar was prohibited, and it continued to be illegal until 1993; dollars were held, nevertheless, and circulated clandestinely from 1960 to 1993. The market was thin, at least until the late 1980s. The early sources of dollars were probably the small flow of Western businesspeople visiting the island, the dollar supply that predated 1960, some payments to Cuban workers at the U.S. military base at Guantanamo, and some Cuban citizens traveling abroad. The demand for dollars was probably generated by Cubans traveling abroad wishing to make major purchases, by some who saw the dollar as a more secure store of value, and by Cubans leaving the country illegally who wished to convert their assets into a transferable medium, as the peso was totally inconvertible. Some observers suggest that another motive to hold liquid assets in U.S. dollars was the expectati on that the Castro regime would be overthrown and a transition would eventually occur.

The dollar's value waxed and waned on the black market, but it stayed generally in the area of 3 to 5 pesos, in relation to the official rates of US$1.00 = CUP 1.00. Transaction costs were exceedingly high. People caught holding dollars could be jailed; some remained incarcerated even after decriminalization of dollar holding. In the 1980s, the supply of available dollars increased as tourism slowly expanded and as more Cubans traveled abroad.

The major expansion of dollar usage in the Cuban economy followed the end of the special trade, credit, and aid relationship with the former Soviet Union in the period 1988-90 and the loss of a proportion of the export markets in Eastern Europe. The loss of the hidden Soviet subsidization embedded in Cuban-Soviet export and import prices led to an approximate 67 percent reduction in imports, a 34 percent reduction in GDP per capita, an energy crisis, and an agriculture and food crisis (CEPAL 2000a, fig. A.1).

Particularly important was the increase in the fiscal deficit to about 29 percent of GDP in 1993, resulting from the coverage of burgeoning state enterprise losses, from continuing expenditures for social programs, and from covering the deficits of the rationing system in the context of large reductions in tax revenues. This fiscal deficit was immediately monetized, generating large increases in the peso money supply in the hands of the public, from 20.0 percent of gross national product in 1989 to 66.5 percent in 1994 (CEPAL 2000a). With supplies of available goods and services declining and with fixed prices for many products in the rationing system, however, inflationary pressures intensified.

The rationing system plus price controls in such areas as housing, automobiles, and interenterprise transactions suppressed much of the inflationary pressure. But those pressures leaked into the expanding black market prices for goods and services and into the market for dollars. In this unofficial peso market, the price of the U.S. dollar reached as high as 150 pesos for a short period in 1994, averaging 95 pesos per dollar throughout that year (see table 1). (2)

For these reasons, the demand for dollars intensified sharply from 1989 to 1994. The supplies of dollars coming into Cuba after 1989 also began to expand, for a number of reasons. Tourism began to increase, and the government began to reemphasize tourism in its development strategy after many years of deemphasis. Business travel from Western countries also increased, as Western enterprises and countries tried to move into the vacuum left by the departure of the Soviet Union. Cubans quickly adapted their activities to tap Western tourism and business in order to acquire some foreign exchange. What's more, family remittances found their way through various channels into the country to support families and relatives facing destitution.

By 1993, the Cuban government was confronting a multidimensional economic crisis to which the old remedies--intensifying controls and regulations or mounting state-led campaigns and programs--seemed irrelevant. Under these circumstances, the government announced in August 1993 that the possession of dollars would no longer be a criminal activity, and legalized the open transfer of family remittances from abroad to Cuban citizens.

THE DOLLARIZATION PROCESS SINCE 1993

Since then, the process of informal and quasi-official dollarization has expanded and consolidated significantly. It is worth emphasizing that this growth has occurred naturally and spontaneously, even though the Cuban government would clearly prefer that it had not taken place. Fundamental economic circumstances and the decisions of numerous actors, including the citizenry of Cuba, the government, tourists, Cubans abroad, and foreign businesses, have produced this situation.

Initially, legalizing the circulation of the U.S. dollar was intended to permit a more effective "capture" of foreign exchange through expansion of sales at the dollar stores, where tax rates were high. The introduction of the "convertible peso" was also a means of replacing a portion of the circulating dollars, thereby capturing the seigniorage. In a second phase, enterprises and some institutions were encouraged to become self-sufficient in dollars and to turn over some of their dollar acquisitions to the Treasury. Then the state itself imposed fees and taxes on citizens in dollars.

The two major continuing forces underlying the dollarization process since 1993 have been the increase in the supply of dollars flowing into Cuba and the increase in the opportunities to spend them, and hence the growth in demand. Clearly, the more dollars that are available to Cuban people and enterprises, the more likely these consumers are to use dollars as a medium of exchange and store of value; and the greater the opportunities to spend dollars, the greater the likelihood that dollars will be accepted in exchange for goods and services.

The most important source of dollars for monetary circulation is undoubtedly family remittances. Members of the Cuban diaspora, principally those in South Florida and other parts of the United States, send income supplements in the form of dollars to their relatives in Cuba through a variety of mechanisms. These dollars flow directly to the citizens to whom they are sent and become part of the stock of money. These inflows have increased from very low levels, under US$18 million in 1991, to perhaps $725 million in 1999, as estimated by ECLAC (see table 2). Other estimates are somewhat lower, however. Monreal (2000, 2), for example, estimates them very roughly at $500 million. (3)

A variety of other transfers are probably lumped together with family remittances in some official estimates, but they are actually different. Most important of these would be purchases of goods and services, by tourists and other visitors, from unreported nonstate sectors (such as the underground economy) or from the legal self-employment sector, where transactions may be underreported or even not directly recorded. (4) Subsequently, however, a portion of these may be "caught" and officially recorded, in sales at the dollar stores, for example. Transfers to Cuban citizens from the same sources may also follow the same path. There is no way to distinguish these types of expenditures and transfers from family remittances, so that the estimates of the latter probably include some proportion of the former.

A third source of dollar inflows is the unofficial but tolerated additional income payments to Cuban employees by foreign enterprises operating in joint ventures with state firms, by foreign embassies, and by international organizations. Such payments in cash or kind again are impossible to estimate but apparently widely used. They are considered necessary income supplements to provide a work incentive and to enable employees to concentrate on their work rather than their next meal.

Perhaps a lesser source of dollar inflows includes the funds saved from per diem allowances by Cubans who can travel abroad, a widely known and valuable income supplement. Those enabled to transfer dollars into Cuba this way would include government officials, academics, sports figures, business managers, artists, musicians, and anyone attending an overseas conference or meeting. Though impossible to measure accurately, unrecorded dollar inflows of this type also undoubtedly increased in the 1990s as more Cubans could work or travel abroad for official purposes. (5) The amounts of these dollar inflows become clear only when expended at dollar stores.

The sum of the inflow of dollars through the four abovementioned channels is probably higher that the sum of "Remittances" and "Other" transfers listed under "Current net transfers" in table 2. This is because the dollar inflows from these sources are not only expended at the dollar stores and official tourist facilities, which are, in effect, surrogate measures for these inflows, but they also contribute to the expanding dollar money supply held by Cuban citizens.

Yet another important source of U.S. dollars, or often "convertible pesos" backed by dollars for Cuban citizens (though not the nation), is the incentive payment in dollars made by some domestic enterprises and joint ventures to workers in key sectors, such as mining or construction. Presumably these dollars come through the government tax office, which acquires them through taxation on dollar transactions. Some 1.08 million workers were receiving such payments in 1999 (CEPAL 2000b, 8). One source estimates the payments at an average $19 per month per worker, for an annual value of US$246.24 million (Triana Cordovi 2000, 5). This large relative magnitude equals 34 percent of remittances or 18 percent of merchandise exports.

In terms of demand, the predominant transaction demand for U.S. dollars is for the purchase of imported goods and some domestic foodstuffs sold in state "dollar stores," or tiendas para la recaudacion de divisas (stores for the collection of foreign exchange). The chains of retail stores for dollars include convenience stores, grocery stores, and retailers of clothing, footwear, household gadgetry, major electronic products, and a broad range of consumer products. The volume of sales at these outlets is enormous, if the value of their dollar sales is translated into pesos at the quasi-official exchange rate, which is actually the relevant rate for Cuban citizens. In 1997, for example, the volume of retail sales at the dollar stores was equivalent to 3.2 percent of GDP, if the parity rate of US$1.00 = CUP 1.00 were used. But at the rate relevant for Cuban citizens, which averaged US$1.00 = CUP 23.00 in 1997, the value of retail sales at these stores constituted 73.6 percent of GDP (calculations derived from S anchez Egozcue 1999, table 1).

The Cuban government applies a sales tax of 140 percent for most of the products in the dollar stores, though for large items, such as imported televisions, the rate is a lower 100 percent. Cuban-produced foodstuffs and other items are increasingly sold in the dollar stores rather than through the rationing system in the traditional peso economy. Most of these dollars make a one-way journey from family in Miami to Cuban citizen to dollar store to the tax office (ONAT, the Oficina Nacional de Administracion Tributaria) and the government (which then imports other goods and services), or to the importing enterprise. They then exit the country again to finance the imported goods sold by the retailer or other products imported by the government. As noted, some dollars are paid out again to workers in key sectors.

U.S. dollars are also required for some official payments of fees to the government. For example, in 1996, a Cuban citizen wishing to leave Cuba as a private tourist had to pay US$200 to the Consultoria Juridica Internacional for the legalization of the letter of invitation from a foreign friend, US$150 for the exit permit, and US$50 for a passport. These magnitudes might not appear unreasonable until compared with the average monthly income in Cuba of 223 pesos, or about US$11 at the quasi-official (relevant) exchange rate CEPAL 2000b, 8).

Cuba's stock of U.S. dollars has probably increased as transaction demands have risen. The volume of goods and services available for dollars has increased steadily compared to those available for pesos. Even in the dollar stores, the proportion of domestically produced goods that were previously available for pesos but are now for sale for dollars has been increasing noticeably. It is also estimated that the portion of the population that has access to dollars through various channels reached 62 percent in 1999, up from 56.3 percent in 1998 (CEPAL 2000b, 9).

Another major type of demand for U.S. dollars is for "store of value" purposes. Solid quantitative evidence on the magnitude of savings held in U.S. dollars and outside the banking system is not available. Anecdotal evidence, however, would suggest that much if not most of the savings of Cuban citizens is in the form of dollars rather than pesos and generally is not kept in the banks. Indeed, this was the response of almost every Cuban the authors asked about the form of individual savings. These people also stated that many of their acquaintances, and Cubans generally, did the same, although those with access only to pesos and not dollars might save in pesos, if they were indeed able to save at all.

The dollar deposit interest rate is rather low, moreover, and thus would not seem to provide much of an incentive for holding savings in the formal banking system. The interest rate paid by the banks for U.S. dollar deposits is 0.5 percent annually for deposits of more than US$200, while the rate for peso deposits is 1.75 percent for deposits exceeding 200 pesos. Popular memories of confiscation of various types of assets and some recent discussion of confiscatory conversion of bank deposits in a monetary reform process also contribute to an aversion to saving, especially dollars, through the banks (Gutierrez Urdaneta et al. 1996). (6) The magnitude of the money supply in U.S. dollars maintained for store of value purposes and outside the formal banking system is therefore likely to be large, even if unknown with accuracy.

Cubans save U.S. dollars partly because of their recent experience of severe inflation and fears of future inflation. In the 1990-95 period, for example, open inflation of the peso was rapid, although this may not be evident from official estimates. Using an "implicit deflator for private consumption," ECLAC calculated a time series for "real average monthly wages." The estimate of this price deflator indicated an estimated inflation rate of 93.1 percent from 1989 to 1995 (CEPAL 2000a, figure A.1). This rate has probably declined since, given the successful implementation of fiscal policies that have reduced the fiscal deficit from around 29 percent to 2 to 4 percent of GDP recently (ECLAC 1997, 50-72).

The true purchasing power of the peso for citizens has continued to decline nevertheless, driven by the reduced volumes of rationed goods available in the old peso economy and the need to purchase ever larger proportions of basic goods, including foodstuffs produced in Cuba, in the high-priced dollar stores. If the true rate of inflation is therefore high, then the store of value incentive to hold dollars also is probably high and perhaps intensifying. Any uncertainty concerning the future course of economic policy and political events in Cuba, furthermore, would contribute to the decision to hold U.S. dollars, which appear to have international stature relative to the peso.

Unfortunately, it appears impossible to know accurately what the volume of the dollar money supply might be. Undoubtedly the Central Bank has made its own estimates, but no information is available on these. Official monetary figures basically ignore the circulation and stock of dollars in the economy.

In its analysis of the Cuban economy, ECLAC (1997, 92) estimates "conservatively" the value of dollar holdings at US$650 million at 1996 year-end. At the quasi-official or "free" exchange rate, ECLAC estimates, this would amount to 130 percent of peso liquidity or 49 percent of GDP. This estimate may be unduly high because the stock of dollars for purchases in the dollar stores undoubtedly circulates rapidly. It may be plausible, on the other hand, if large volumes of dollars are held as a store of value and circulate slowly.

A second estimate was made by two researchers in Cuba's Institute of Research on Finance and Prices (Alvarez Hernandez and Chaviano 1998). Their approach was to calculate the sum of the total value of sales in the dollar stores plus sales of dollars in the state exchange (CADECA), then to multiply this by the quasi-official exchange rate and compare the result to the total value of current peso expenditures in the economy. For 1996, this yielded an estimate of the value of dollars (US$639 million) equivalent to 13,209 million pesos (at a quasi-official exchange rate of US$1.00 = CUP 20.12), compared to 13,133 million pesos for national peso expenditures. According to this approach, the value of U.S. dollars in circulation would have exceeded the value of pesos in circulation. If this conclusion is correct, it is likely that in the years since 1996, the degree of dollarization has increased significantly in view of the increases in tourism, foreign travel by Cubans, and payments of dollar wage supplements to workers.

CONSEQUENCES OF DOLLARIZATION

The dollarization phenomenon is tied to, and often blamed for, a number of serious problems currently facing the Cuban economy. Yet the sources of these problems rest mainly in other aspects of public policy (see Ritter 1995).

The most serious consequence of the bifurcation between the dollar and peso economies concerns income distribution and the general structure of incentives. In the state sector in general, average monthly wages and salaries in 1999, in real or purchasing power terms, amounted to only 54.8 percent of their level in 1989, according to ECLAC estimates (CEPAL 2000a, figure A.1). In 1999, the average Cuban worker earned 223 pesos per month in the socialist economy (CEPAL 2000b, 8), and in 2000 the average pensioner received 104 pesos per month (Espinosa Chepe 2001). Doctors, teachers, engineers, and professors earned in the range of 200 to 450 pesos monthly, which, at the exchange rate of relevance for citizens (say 20 CUP = US$1), amounts to about US$10.00-$22.50. On the other hand, those in the tourist sector or providing auxiliary services or those receiving remittances may receive a very large multiple of these amounts.

This situation gives people a powerful incentive to leave the state peso economy and switch to the dollar economy; for example, teachers becoming sellers of artisanal products, chemists becoming self-employed shoemakers, professors becoming hotel receptionists or security guards, engineers driving taxis. People may also forsake the state or peso economy for work in the underground economy. The result for society generally is that those who perform vital functions in health, education, agriculture, or industry receive much less for their efforts than those with access to dollar sources of income.

Essential public services, notably education, health, public administration generally, and social security, which are provided in the peso economy, have experienced severe reductions in the real purchasing power of their budgetary allocations. In nominal peso terms, for example, Cuba's total education budget fell from 1,620 million pesos in 1990 to 1,585 million pesos in 1999 (CEPAL 2000a, figure A.21). The total value of salary payments in the education sector also declined in this period. This means that, including the effects of inflation in the peso economy together with citizens' need to purchase from the high-priced agricultural markets and the dollar stores, the real value of the education budget would have declined seriously. This has affected the quality of these services, as well as the availability of supplies, maintenance, and replacement investment. The real living standards of employees in the educational and health systems, whose incomes are restricted to pesos, have also declined with their p urchasing power. The costs of Cuba's "structural adjustment" therefore have been borne by the employees in the education and health sectors, and by pensioners or those on social security.

Another general impact is on the pattern of trade. Some sectors, such as tourism, receive part of their revenues in dollars, and are entitled to purchase their needed imported inputs in dollars at the official parity rate. Other sectors, such as sugar, or potential new export producers receive pesos from their export products at the official parity rate but are not themselves entitled to acquire their imported inputs at the same parity rate. Instead, the foreign exchange goes into a central fund, which then allots it to all the sectors.

The sugar sector, for example, earns pesos from its exports at a rate of one peso per dollar's worth of sugar exported, not 20 pesos (the "extra-official" or other official rate). It has only limited access to the foreign exchange it earns, although the imported inputs it is able to acquire come at a rate of US$1.00 = CUP 1.00. The sector therefore appears to be perennially unprofitable and economically unviable. At an exchange rate of 20 pesos to the dollar and with access to its own foreign exchange earnings for input purchase, on the other hand, sugar would probably be exceedingly profitable and viable.

Similarly, at what might be a reasonable market-determined exchange rate for the country, perhaps 5 to 10 pesos per US$1.00, the sugar sector would earn roughly 300 percent to 900 percent more pesos for each pound of sugar exported. It would be able to cover its domestic currency costs with ease. If also permitted access to its own foreign exchange earnings, it could import the inputs and capital equipment it needed. It would therefore probably be commercially profitable and economically viable.

This general situation arising from the exchange rate policy impedes the expansion of traditional exports and creates a major monetary disincentive or barrier to the development of new export activities.

THE PROSPECTS FOR EUROIZATION

Discussions took place from 1999 to 2001 in Cuba concerning the possibility of switching from the U.S. dollar to the euro (see, for example, Hidalgo et al. 2001, 36). Indeed, the issue seems to have been opened up for general academic discussion as well as raised in the government--a somewhat uncommon situation. The reasons can be surmised.

One of the disadvantages of dollarization in the Cuban government's eyes is that the seigniorage goes to its 'historic enemy," the U.S. government. For every dollar that stays in Cuba as part of the stock of money, the U.S. Federal Reserve can issue one more dollar for domestic circulation without causing domestic inflation, so that one dollar's worth of goods and services gets transferred from Cuba to the U.S. government. The overwhelming portion of the dollars coming to Cuba, however, arrives as a free gift through family remittances from Cubans abroad and mainly in the United States. In that case, the resources are transferred from the individual foreign donor to the U.S. government. (Even if the dollar eventually leaves Cuba and if it were then to be withdrawn from circulation by the Federal Reserve, Cubans have made an interest-free loan to the U.S. government for the whole time the dollar stayed in Cuba.) Naturally, this is a strong reason for the Cuban government to prefer "euroization" to dollarizati on, for then the seigniorage would go to the European Union rather than to the United States.

A second possible factor is the dollar's fluctuation relative to the euro. The U.S. dollar was riding high in 2000--2001, appreciating sharply against the euro and most other currencies; but that rise is not likely to last forever. Uncertainties regarding the euro, moreover, along with worries about the quality of economic policy formulation in Europe and a perception of greater technological dynamism and growth prospects in the United States, have encouraged large financial outflows from Europe to the United States. If and when that uncertainty diminishes, or if the euro is perceived to have been seriously undervalued in 1999 and 2000, central banks, enterprises, and individuals may shift into the euro from the dollar, again putting downward pressure on the dollar.

Indeed, if there were a "hard landing" in the near future for the U.S. economy as it faces up to its severe current account imbalances, which were about 4 percent of GDP in 2001 (Economist 2002), a major realignment of the dollar and the euro could be expected; namely, a dollar depreciation (IMF 2000, 55).

By shifting dramatically and totally from the dollar to the euro or by threatening to do so, the Cuban government might hope to weaken the U.S. dollar as an international currency. In principle, the Cuban government could effect this through two channels: by selling Cuba's stock of dollars and buying euros, causing the dollar to depreciate against the euro; or by abandoning the dollar and adopting the euro as its international currency, making the dollar less attractive and the euro more attractive for other countries to use and creating a network externality against the dollar and in favor of the euro.

In both channels, however, the impact is likely to be small, because the Cuban economy is itself small relative to the United States and the rest of the dollar zone. The world supply of U.S. dollar currency is more than $500 billion. A high estimate of U.S. dollars in Cuba would be $1 billion, which is a mere 0.2 percent of the total world supply. And Cuban transactions in U.S. dollars, as a percentage of world transactions in U.S. dollars, would be smaller still. Compared to the recent full dollarization of Ecuador and El Salvador (toward which the U.S. government seemed to be largely indifferent), Cuban dedollarization or euroization would be a small backward step in dollarization in Latin America.

The Cuban government nevertheless might overestimate its power, or else simply want to make a symbolic shift away from the dollar for political reasons, as did Saddam Hussein of Iraq, who recently tried to demand payment for petroleum exports in euros instead of dollars (National Post 2000).

A frequently mentioned justification for replacing the dollar with the euro is that a large share of Cuba's trade and tourism comes from Europe. In 1998, for example, about 30 percent of total trade was with Canada and the Western Hemisphere while 36.3 percent was with Western Europe. (Russia, China, and Japan were also major trade partners, with about 15.6 percent of Cuba's total exports plus imports. CIA 2000, tables 2 and 3). A switch to the euro would lower the transaction costs of trading with Western Europe and perhaps save Cuba a small percentage of transaction costs.

With respect to tourism, in 1999, 20.9 percent of Cuba's tourists came from the United States (an estimated 60,000) and Canada, and 9.2 percent from larger Latin American countries (Argentina, Brazil, Mexico, and Venezuela), while 41.2 percent came from the larger European countries (CEPAL 2000b, 38). The pro-euro argument is that because more tourists came from Western Europe, Cuba's use of the euro as its currency for the tourist sector would attract them in greater numbers and induce them to spend more. In this case, European tourists would be saved the transaction costs of converting their euros to dollars; Cuba perhaps could raise prices accordingly and earn more revenue. On the other hand, the reverse impact would occur for tourists from North America and probably from Latin America as well, who stand more or less within the dollar's sphere of influence.

The actual impact of switching from the dollar to the euro is likely to be insignificantly positive in the short run and substantially negative in the long run. In the short run, in terms of tourism, based on the percentages noted above, the gain to Cuba could be on the order of about 1 percent of its gross receipts from eurozone tourists. This would be roughly US$9.2 million on gross receipts of US$2,220 million for 1999 (CEPAL 2000a, 510), but in contrast to a loss of US$6.7 million for Western Hemisphere tourism. This net gain, US$2.5 million, does not appear significant compared to the probable transitional and administrative costs of switching to the euro.

What would be the impact on family remittance payments, most of which come from the Cuban American community? It is hard to predict how the volume of those remittances would be affected if either the donors or the recipients had first to convert their U.s. dollars into euros. Presumably they would bear some of the increased transaction costs, and the net amount of foreign exchange available to be spent in Cuba would fall. This "nuisance factor," moreover, might induce donors to reduce their gifts. More significant for the government, however, would be the possible loss of foreign exchange represented by those remittances (as expressed in the eventual tax revenues from the dollar stores). If that loss exceeded the earnings from actual European tourists, it might make the Cuban government prefer dollarization to euroization.

In the longer term (which might be ten years or more), normalization of economic and political relations with the United States will inevitably occur. In that context, it seems obvious that U.S.-Cuban trade, as well as tourism, will expand quickly and overwhelm Cuba's interactions with other countries and regions. To adopt the euro in that context would not make sense. Exchange to the euro might be virtually impossible to police unless extremely intrusive controls were placed on the transactions. Such intrusiveness would be counterproductive and impractical and would incur high administrative costs and ultimately high economic costs.

Finally, the U.S. dollar has a long history of acceptance in Cuba, while the euro, as a new currency, obviously does not. Cubans know the dollar's worth and trust its value. The mere availability of an alternative foreign currency will not necessarily drive the dollar out of circulation.

Therefore, if the Cuban government were to attempt to introduce the euro, it might only convert a two-currency economy into a three-currency economy and raise transaction costs further. The U.S. dollar has been accepted by Cuban citizens spontaneously and naturally over the years. If the euro were similarly accepted, then an official switch might be reasonable; but an attempt to force a switch would simply add a third currency to Cuba's monetary system.

While euroization as an alternative to dollarization may not be feasible except at prohibitive cost, to hold the euro as part of the foreign exchange reserve portfolio would be reasonable and cost-effective for financial transactions with the European Union and other countries that may use the euro in the future. Presumably Cuba now holds European currencies in its foreign exchange reserves, so adding or switching to the euro cannot be seen as particularly newsworthy.

STRENGTHENING THE ROLE OF THE PESO

The other monetary alternative is to strengthen the use of the Cuban peso in the Cuban economy so that in time it replaces the U.S. dollar through the same natural process of choice among Cuban citizens and businesses as the dollar has experienced. This is such a difficult task, however, that the Cuban government is essentially ignoring it at the moment, at least in terms of implementing relevant policy measures, presumably because the costs of reversing the dollarization process exceed the benefits. A variety of Cuban analysts, whose works have been summarized by Sanchez Egozcue, agree that it would be desirable to reduce dollarization by strengthening the use of the peso but also conclude that to do so is unrealistic under current circumstances (Sanchez Egozcue 1999, 18-19).

In its 1999 annual report, the Central Bank of Cuba (2000) makes no mention of policy measures designed specifically to unify the exchange rates, the monetary systems, or the peso and dollar economies. By 2000, however, the monetary duality issue apparently had become a focus of research in the Central Bank, the Ministry of Finance, and possibly other agencies.

A number of advantages would arise from a successful strengthening of the peso; that is, making it a freely convertible currency, circulating domestically by popular choice and not as a result of coercive controls and regulations, with its value sustainable freely in international currency markets.

The first advantage is that a convertible and stable currency could permit the Central Bank of Cuba to pursue an effective and independent monetary policy. This would be desirable as a way to contribute to domestic economic stabilization in the face of external or internal shocks in aggregate demand. This would also require a more market-oriented economy, however, in which price signals were allowed to operate more comprehensively and more effectively, as well as an internal bond market, so that monetary policy could actually function. A second advantage is that Cuba would capture the seigniorage that currently is transferred ultimately to the U.S. government. Although the value of this is not now known with accuracy, it is likely to be significant.

A strengthened peso and convertibility would facilitate the unification of the current two exchange rates and the two corresponding areas of the economy. Indeed, this is probably a necessary condition for the unification of the domestic economy. This would resolve the ubiquitous and profound problems arising from the deformities of the general structure of incentives.

To strengthen the place of the peso requires nothing less than a unification of the general dollar-peso bifurcation of the economy, which is not only monetary in character but also institutional, structural, behavioral, and rooted in the government's dual exchange rate policy. Such a unification will require a unification of the official and quasi-official exchange rates for the dollar. This will necessitate a major devaluation of the official dollar-peso parity rate, which will increase the cost of some important imported products, such as cereals and other food products currently provided at low prices to citizens through the rationing system.

The devaluation of parity, in turn, would necessitate a restructuring of the wage and salary scale, which ranged in 2000 from about 100 pesos per month for a pensioner to around 550 for high officials. The reason is that with higher prices of basic imported necessities, current wage levels would not permit the purchase of the essential "basket" of food necessary for survival. (Indeed, it is surprising that anyone could survive on peso wages and salaries in the 2000-2001 period without access to dollars.) The task of reconfiguring the whole system of prices and incomes in a socially equitable manner is immense.

What types of policy measures would be necessary in order to unify the two exchange rates and, indeed, the peso and dollar economies? Although a detailed plan of action is beyond the scope of this essay, the relevant policy areas and a few of the relevant types of policies can be considered.

Exchange Rate Policy

It would be necessary and desirable to begin a gradual, market-driven process of devaluation of the official rate of the old peso. This would also imply eliminating the spread between the official rate (US$1.00 = CUP 1.00) and the quasi-official rate (US$1.00 = CUP 22.00 in 2001) and, in effect, unifying the old peso and the U.S. dollar (and also the "convertible" peso).

The mechanics of the devaluation of the official rate and the unification of the "official official" and "extra-official" rates can be illustrated with a graphic analysis of Cuba's foreign exchange market; that is, the market for U.S. dollars from Cuba's perspective (figure 1). In this figure, which is the standard framework for a simple analysis of a foreign exchange market, the peso price of the dollar, or the exchange rate, is shown on the vertical axis, and the volume of U.S. dollars demanded and supplied by Cuba is shown on the horizontal axis. The supply (S) of U.S. dollars that would be earned or acquired at different exchange rates slopes upward to the right. This shows that as the value of the U.S. dollar increases (or as the value of the peso declines), Cuba's exports of goods and services become relatively cheaper, so that the volume of U.S. dollars earned increases. The demand (D) for U.S. dollars curves downward, showing that as the value of the dollar declines (and the peso increases), larger volumes of imported goods and services would be demanded, as such imports would be relatively cheaper.

In this illustration, with no intervention in the foreign exchange market, the exchange rate would settle at 5 pesos per U.S. dollar, with foreign exchange receipts equaling foreign exchange expenditures at $7 billion. If, however, the exchange rate were to be fixed at parity (as is actually the case), or CUP 1.00 = US$1.00, the foreign exchange acquired is shown here at US$4 billion. At the parity exchange rate, the volume of foreign exchange that would be demanded for imports of goods and services would be very large indeed, in the absence of bureaucratic controls on imports, as such imports would be very inexpensive for Cuban citizens at that exchange rate. In the diagram, the volume of imports is illustrated to be US$12 billion. If all of the $4 billion of foreign exchange were to be made available to the general public via auction, the auction-determined exchange rate would be 10 pesos to the U.S. dollar in this illustration.

Assuming that $3 million of the $4 billion of foreign exchange available is expended by the government or authorized agencies for the purchase of imports, the remaining $1 billion then would be available to the public through remittances, tourist purchases, circulation outside official channels, and other means. This scenario is not far from current realities. The exchange rate for this market would be determined by supply and demand, not by edict. It is this "extra-official" exchange rate that rises to the currently observed level of 22 pesos to the U.S. dollar in reality as well as in the diagram.

To make the peso convertible and to consolidate its place in the domestic Cuban economy, the Cuban monetary authorities would have to do two things. First, they would need to permit the exchange rate to move steadily, though perhaps slowly, to a market-determined level, which, in effect, is to permit a gradual devaluation of the peso. Second, they would have to make the foreign exchange freely available to the public in increasing volumes.

For example, a devaluation of the official exchange rate to 3 pesos per U.S. dollar would increase foreign exchange available to US$6 billion in the diagram, while the total amount of U.S. dollars demanded for the purchase of imports would decline from $12 billion to around $8.5 billion. If the amount of U.S. dollars made available to the public were increased substantially, the extra-official exchange rate for the peso would "appreciate"; that is, the price of the U.S. dollar would decline in the extra-official market from the original 22 pesos to around 7 pesos.

Over time, a series of devaluations of the official rate, together with increases in the amounts of foreign exchange made available for general public use, would lead to a convergence of the official and the extra-official exchange rates. In the diagram, this would occur at 5 pesos per U.S. dollar, and with perhaps US$7 billion of foreign exchange acquired and expended for both current and capital account purposes.

Monetary Policy

With respect to monetary policy, one policy already successfully implemented has been to reduce the so-called monetary overhang of the old peso; that is, the number of pesos in circulation that had no real monetary function and were surplus to the public's transactions and precautionary demand for money. Monetary "liquidity" was actually reduced from 66.5 percent of GDP to 37.5 percent from 1993 to 1998 (CEPAL 2000a, fig. A.1).

This was achieved by various fiscal austerity measures (higher taxes on tobacco products, for example), higher prices for some state-provided goods and services, reduced subsidies to state enterprises, and tight limits on any increases in the money supply. Further measures that would increase the use and demand for the "old peso" would be to establish legal domestic markets for major assets, such as cars, housing, capital goods, and intermediate inputs for individuals, enterprises, and governments. These products have been undervalued in official exchange circuits (but not unofficial exchange circuits). Liberalizing their prices would absorb the purchasing power of the peso and increase the demand for pesos relative to the dollar. (7)

Another helpful policy would be to reduce the large volume of interenterprise debt, which, in effect, adds to the volume of peso credit in the system. (The above-mentioned measures of monetary liquidity do not include interenterprise credit). Furthermore, some decontrol of prices in the peso economy may be appropriate. The rise in prices in the short run would provide additional uses for the peso and increase the demand for it relative to the dollar. Finally, tourists might be permitted to use pesos as freely as dollars, obtaining them at the market-determined rate, thereby increasing the demand for pesos. This would also mean permitting tourists to convert their dollars back into pesos at the market-determined rate.

Fiscal Policy

Fiscal policy has been operating with considerable success in maintaining the basic fiscal balances, and it should continue on course. In 1999, the fiscal deficit was reduced to 2.4 percent of GDP, a quite acceptable level (Banco Central 2000, 11). There are still significant deficits in some state enterprises that might be further reduced and the fiscal savings redirected to other uses, such as, perhaps, well-targeted income support measures.

Incomes, Social Security, and Prices

These exchange rate and monetary policies would have the effect of increasing the prices of those imported goods that are now imported at the parity exchange rate and made available through the rationing system. (Imports available in the dollar stores, however, at the international price plus 140 percent tax for basic foodstuffs or 100 percent for electronic products, and for which the extra-official exchange rate is the relevant rate, would actually be cheaper.) Still, many people without access to U.S. dollars would face serious increases in their cost of living as prices rose for imported goods available through the rationing system.

This means that the structure of wages and salaries would have to be adjusted in step with any devaluation of the official rate of the peso. Basically this would involve a redesign and gradual phase-in of modifications to the general structure of incomes and prices to permit prices to move to market-determined levels. This measure is particularly dangerous because the increases could launch an inflationary spiral. Appropriate monetary and fiscal policy could be necessary to contain such a tendency. As the official and extra-official exchange rates converged, the official wage and salary scales would recover their purchasing power in terms of foreign exchange in the extra-official dollar economy. Perhaps the increases in the nominal wage and salary scale therefore would not have to be extreme.

As the real incomes of workers in the peso economy recovered, the major inequities between those with access to dollars and those earning only pesos would shrink and ultimately disappear. Moreover, the perverse character of the general structure of incentives, which currently deforms people's and enterprises' economic behavior, would also vanish. These two effects would have immense value in terms of both equality and efficiency.

A system of income support measures for lower-income receivers rather than universal untargeted subsidization of everyone through the rationing system could also be considered. This process generally would certainly benefit from the support of the international community and the international financial institutions (IFIs). Indeed, because Cuba has no debt to the International Monetary Fund, the World Bank, or the Inter-American Development Bank, a good deal of unconditional credit would be available, conditionality being a feature of such borrowing that the Cuban government has criticized in the past. Unfortunately, Cuba is not a member of the major IFIs at this time and is ineligible for such support. In time, this will change.

This type of policy package would be difficult to implement and would create much public uncertainty. It would require careful implementation and explanation. Cuban citizens, however, are well aware of the difficulties, irrationalities, and injustices of the current system. It is probable that many or most Cubans would be receptive to a well-designed and well-executed strategy aimed at unifying the two parts of the economy and restoring the peso to its place as a strong convertible currency.

CONCLUSIONS

Today the dollar may be a more significant component of Cuba's overall money supply than the old peso. This study has argued that attempting to adopt the euro as an alternative would be unviable, except at high cost. This apparently is also the conclusion of the Central Bank of Cuba, for it does not appear to be pursuing the euroization option.

Nor does the Cuban government appear to be planning to restore the Cuban peso as a strong and convertible national currency, possibly a more advantageous objective. Other objectives are still of greater urgency. In time, however, it is to be hoped that "putting the Cuban economy in order" will lead to a full rehabilitation of the Cuban peso.

Cuba's near-term monetary future will probably be much the same as its recent monetary past. The Cuban government will not deliberately abandon the peso; symbolic reasons aside, it simply cannot afford the loss of seigniorage. But neither will the government eliminate the use of the U.S. dollar. Its past attempts to do this have failed; and forcing foreign tourists to use the inconvertible peso would seriously damage Cuba's tourist revenues and family remittances. Introducing the euro would only further complicate an already complicated monetary system. The euro would not drive out the dollar.

In the longer term, probably well post-Castro, some radical changes to Cuba's monetary system are possible. If Cuba were to become a market economy that responded to price incentives, it would see a definite advantage in having an independent and strong national currency, freely convertible under flexible exchange rates. An independent central bank could then use monetary policy to pursue macroeconomic stabilization. But this is feasible only if budgetary discipline is accepted and a market in government bonds reestablished, so that the central bank is not simply forced to monetize government budget deficits. A more pessimistic scenario is also possible, of course, in which a governmental, budgetary, and economic crisis causes the collapse of the peso and leads to full official dollarization by default.

Table 1. Cuba: Exchange Rates, 1990-2000 (pesos per dollars)
 
 Official Exchange Rates Quasi-official
 Commercial Tourist Exchange Rate
 Rate Rate (Annual average)
 
1989 0.74 1.0 5.0
1990 0.74 1.0 7.0
1991  0.74 1.0 20.0
1992 0.74 1.0 35.0
1993 0.74 1.0 78.0
1994 0.74 1.0 95.0
1995 (a) 1.0 32.1
1996  1.0 19.2
1997 1.0 23.0
1998 1.0 21.0
1999 1.0 20.0
2000 1.0 21.0
2001 (b) 1.0 22.0
2002 (b) 1.0 26.0
 
(a)The commercial and tourist rates were unified at the parity rate of
US$1.00 = CUP 1.00 by 1995.
 
(b)Preliminary estimates.
 
Source: CEPAL 2000a, table A.1, based on statistics from the Central
Bank of Cuba and internal estimates.
Table 2. Cuba's Balance of Payments, 1991-2001 (in US$ millions)
 
 1991 1992 1993 1994 1995
 
Balance on current account -1.454 -420 -372 -260 -518
Commercial balance -1.138 -215 -371 -308 -639
Exports of goods and services (b) 3.563 2.522 1.968 2.542 2.926
 Goods (c) 2.980 1.779 1.137 1.381 1.507
 Services  584 742 832 1.160 1.419
Imports of goods and services (b) 4.702 2.737 2.339 2.849 3.565
 Goods (d) 4.234 2.315 1.984 2.353 2.883
 Services 468 422 355 497 683
Current net transfers 18 43 263 470 646
 Remittances (e) -- -- -- -- 537
 Donations (e) -- -- -- -- 109
 Other (e) --  -- -- -- --
Factor services -334 -248 -264 -423 -525
Balance on capital account (f) 1.421 419 356 262 596
 Direct foreign investment portion -- -- 54 563 5
Global balance  -33 -1 -16 2 78
 
 1996 1997 1998 1999 2000 (a)
 
Balance on current account -167 -437 -396 -176 -600
Commercial balance -419 -746 -617 -426 -780
Exports of goods and services (b) 3.707 3.882 4.182 4.521 4.807
 Goods (c) 1.866 1.823 1.444 1.372 1.692
 Services 1.841 2.059 2.738 3.149 3.115
Imports of goods and services (b) 4.125 4.628 4.800 4.947 5.587
 Goods (d) 3.569 3.996 4.182 4.307 4.816
 Services 556 632 618 640 771
Current net transfers 744 792 820 850 850
 Remittances (e) 630 670 700 725 720
 Donations (e) 88 92 48 50 n.a.
 Other (e) 26 30 72 75 n.a.
Factor services  -493 -483 -599 -600 -670
Balance on capital account (f) 174 458 413 486 640
 Direct foreign investment portion 82 442 207 205 n.a.
Global balance 7 21 17 24 40
 
 2001 (a)
 
Balance on current account -758
Commercial balance -758
Exports of goods and services (b) 4.893
 Goods (c) 1.708
 Services 3.185
Imports of goods and services (b) 5.651
 Goods (d) 5.125
 Services 526
Current net transfers 750
 Remittances (e) n.a.
 Donations (e) n.a.
 Other (e) n.a.
Factor services -750
Balance on capital account (f) 770
 Direct foreign investment portion n.a.
Global balance  12
 
(a)Preliminary estimates and interpolations, ECLAC.
 
(b)Foreign merchandise trade statistics may diverge from other sources
because of differences in sources and methodologies, especially for
1993-1998.
 
(c)1989-1992: merchandise exports (without donations); ONE; FOB
valuation. 1997-1998: Banco Central 1999.
 
(d)1989-1992: merchandise imports (without donations); ONE, valuation.
"according to the conditions of purchase"; CIF. 1997-1998: Banco Central
1999.
 
(e)ECLAC estimates.
 
(f)Includes errors and omissions.
 
Sources: ECLAC, based on official statistics from Oficina National de
Estadisticas (ONE), Central Bank of Cuba, and internal estimates.
 

NOTES

We acknowledge the useful comments from Jorge Mario Sanchez and Orlando Gutierrez of the University of Havana; Ana Maria Nieto, Director, Financial Studies, Central Bank of Cuba; and the anonymous referees for this journal. None of these persons, of course, bears any responsibility for the views, interpretations, or analyses presented in this essay, which are the responsibility of the authors alone.

(1.) Official estimates of inflation are likely to be particularly inaccurate, as they do not take the changing "basket" of consumer goods into account in the latter part of the 1990s. Cuban citizens must spend steadily increasing proportions of their incomes on food and other purchases from the dollar stores, where prices are a very large multiple of those in the peso economy and also include a 140 percent tax. Citizens must purchase food in these stores because their rationed foodstuffs do not last for the monthlong ration period. Cuban-produced foodstuffs are increasingly sold in the dollar stores as well. This represents a large increase in the monthly food bill for many Cubans and a high rate of authentic inflation.

(2.) The extreme "spiking" of the unofficial exchange rate for the dollar in 1994 also came from the extraordinarily large demand for dollars by the balseros fleeing Cuba by boat or homemade raft in August of that year. The balseros were trying to convert their assets into dollars before departure, in the context of a very thin dollar market.

(3.) The early estimates of Mesa-Lago (1995, 62) for remittance payments and other similar inflows of U.S. dollars are surprisingly close to the actual volumes of the later 1990s.

(4.) As is well known, tourism has increased rapidly in Cuba. By 1999, tourist arrivals reached 1.6 million persons. Gross revenues from tourism amounted to US$1.9 billion that year. If import leakages in the sector actually diminished from 70 percent to reported levels of 50 percent or 46 percent, then net tourist revenues would have figured between $950 million to $1.05 billion that year (CEPAL 2000b 6; Gancedo Gaspar and Gutierrez Castillo 2000, citing Figueres 2000). Tourist purchases of goods and services and transfers to Cuban citizens outside official circuits likely have increased as gross tourism expenditures have expanded.

(5.) Some of those working abroad also transfer a proportion of their earnings to their home institution. University professors, for example, pay their university 75 percent of their dollar earnings from courses taught abroad.

(6.) The large amount of U.S. dollars held outside the banking system for purposes of savings constitutes a major untapped resource for the Cuban economy. Access to such savings by society at large, if they could be shifted to the banking system and made available for investment and for the importation of investible goods, would benefit society in general.

(7.) It is useful to recall that opening the agricultural markets in 1994--where Cubans could spend marginal pesos, albeit at high prices--immediately caused the peso to appreciate to about 40 pesos per dollar from a low of about 120. Allowing the legal exchange of old pesos for dollars and "convertible pesos" increased the demand still further, and the peso appreciated to about 20 per dollar. These steps, coupled with attempts to control the budget deficit and reduce the stock of pesos in circulation, helped to prevent the peso's collapse as a store of value and medium of exchange. Permitting additional uses for the peso would have a similar result.

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Archibald R. M. Ritter is a professor of economics and international affairs at Carleton University, Ottawa. He has written extensively on a variety of issues relating to development in a Latin American context. His works on Cuba include The Economic Development of Revolutionary Cuba: Strategy and Performance (1974), Cuba in the International System: Integration and Normalization (edited with John Kirk, 1995), and studies of Cuba's microenterprise sector. He was an initiator as well as the Canadian coordinator of the Joint Master's in Economics Program of Carleton University and the University of Havana, 1994-1999.

Nicholas Rowe is a professor of economics at Carleton University, where he has worked since 1981. He visited Cuba numerous times from 1993 to 2001, mostly to teach macroeconomics for the joint master's degree program. His research, some of which he is currently conducting at the Bank of Canada, focuses on monetary policy, particularly the choice between fixed exchange rates and inflation targeting; and on the econometric analysis of inflation-targeting regimes.