HAVANA, Cuba (AFP) — Cubans awoke on New Year’s Day to a new currency structure under long-awaited economic refor ms that come with a double-edged sword of salary increases and price hikes.

The reforms entered into force on the communist island last Friday — dubbed “Day Zero” — just weeks after they were announced by President Miguel Diaz-Canel.

The policy is intended to make the Cuban economy more efficient and easier to understand for foreign investors 62 years after Fidel Castro’s communist revolution.

The plan will see the convertible peso, which is pinned to the dollar and was introduced in 1994 to replace the US currency, phased out over six months.

This will leave only the regular peso, worth about 24 times less.

Inflation will soar as a result, and authorities have warned of a 160 per cent average hike in prices.

Bread and electricity costs will rise, and in an added blow, the Government has said it will also curb subsidies on some consumer goods as part of the reforms.

In exchange, the minimum wage will be hiked from 400 pesos to 2,100 pesos (about US$15 to US$80.)

Many are concerned higher salaries will not make up for inflation.

“Everyone is worried. The Cuban lives in fear,” said 36-year-old merchant Yusbel Pozo.

“The future is uncertain,” he added. “We don’t know what is going to happen. The electricity [price] is going up, food will follow.”

Last year, the Cuban economy shrank 11 per cent, its worse decline in 27 years.

The country is reeling from sanctions toughened by the Administration of US President Donald Trump, and a decline in tourism and remittances due to the novel coronavirus pandemic.

University of Havana economist Ricardo Torres told AFP that despite months of planning, some aspects of the reform “are beyond the Government’s control, such as the possibility of uncontrolled inflation”.

Meanwhile, the United States on Friday placed a Cuban bank on a list of restricted entities, saying its profits “disproportionately benefit the Cuban military” and help fund “Cuba’s interference in Venezuela”.

The State Department announced the addition of the Banco Financiero International (BFI) to its Cuba Restricted List, which generally prohibits direct financial transactions with listed entities.

“BFI is a Cuban military-controlled commercial bank that benefits directly from financial transactions at the expense of the Cuban people” while giving “preferential access” to military and State companies, Secretary of State Michael Pompeo said in a statement.

Cuban Foreign Minister Bruno Rodriguez said in a tweet: “I reject new punitive measure of #US State Department to tighten blockade against #Cuba.

“The inclusion of Cuban entities in its lists is intended to reinforce an economic siege that has failed to destroy the Cuban Revolution after 62 years.”

Washington’s move came amid speculation that the Trump Administration, in its waning days, is weighing whether to redesignate the island as a state sponsor of terrorism.

Such a move, which would severely impede foreign investment, could hinder the diplomacy of President-elect Joe Biden.

The State Department has drawn up a proposal to that effect, according to the New York Times, which said it was unclear if Pompeo would sign off on it.

Earlier in the week Rodriguez repeated a frequent complaint that the United States itself shelters “terrorist groups acting against Cuba”.

Cuban-American anti-communist activists deny any wrongdoing.