Exchange Rate Unification: The Cuban Case

Cuban Economic Change in Comparative Perspective Paper Series - Brookings, Forthcoming

23 Pages Posted: 7 Apr 2014

See all articles by Augusto de la Torre

Augusto de la Torre

UDLA, Centro de Investigaciones Económicas; Columbia University, SIPA

Alain Ize

World Bank

Multiple version iconThere are 2 versions of this paper

Date Written: December 15, 2013

Abstract

This paper reviews from an international perspective the challenges faced by Cuba in unifying its exchange rate and compares various options to meet this objective. It argues in favor of a fast unification approach but cushioned during a pre-announced transition period by lump-sum taxes and subsidies applied on an enterprise-by-enterprise basis. By allowing for relative price changes to operate in full from the start, the immediate unification would maximize efficiency gains. At the same time, by cushioning the Cuban economy from potentially large transitional pains — including fiscal revenue losses, productive dislocations, inflationary outbursts and distributional effects — the lump-sum taxes and subsidies (to be gradually phased out) would ease the transition, thereby boosting policy credibility. However, to ensure the viability of the scheme and the rapid materialization of the efficiency gains, important habilitating reforms would be needed, particularly as regard the governance of state enterprises.

Keywords: Exhange Rate Regimes, Exchange Rate Policy, Dual exchange rates, Exchange Rate Unification, Economies in Transition, Dollarization, Currency Unification

JEL Classification: F31, F41, F43

Suggested Citation

de la Torre, Augusto and Ize, Alain, Exchange Rate Unification: The Cuban Case (December 15, 2013). Cuban Economic Change in Comparative Perspective Paper Series - Brookings, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2420986 or http://dx.doi.org/10.2139/ssrn.2420986

Augusto De la Torre (Contact Author)

UDLA, Centro de Investigaciones Económicas ( email )

De los Granados y De los Colimes, Esquina
Quito, Pichincha
Ecuador

Columbia University, SIPA ( email )

420 West 118th Street
New York, NY
United States

Alain Ize

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

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