The Americas: Adios to the greenback; Cuba's currency;

The Economist.

Fidel Castro has banned the dollar--helped by America's embargo

FEW things can irk Cuba's president, Fidel Castro, more than the fact that the greenback, the ultimate symbol of the global power of his arch-enemy, the United States, is also a mainstay of his own country's economy. And therefore few things can have satisfied him more than announcing this week, just days after a humiliating fall in which he fractured his knee and arm, that from November 8th, the dollar will no longer be legal for commercial transactions. Cubans will still be able to keep dollars and to swap them for "convertible pesos"--equal in value, but thoroughly unconvertible anywhere outside Cuba--but they will pay a 10% commission.

The dollar's introduction as legal tender in 1993, along with a slight loosening of restrictions on private enterprise, was an emergency measure to help the country earn hard currency after the Soviet Union, and its subsidies to Cuba, disappeared. But unlike many hopeful Cuba-watchers, Mr Castro clearly never saw such measures as anything but temporary. The dollar's withdrawal is just the biggest and latest step in a series. American coins were taken out of circulation in October 2001, and last year state companies were forced to use only convertible pesos. The never-easy rules on private entrepreneurship have been tightened bit by bit; a month ago there was a freeze on new licences for many kinds of small business.

The latest news sparked widespread dismay among ordinary Cubans, who are now rushing to bring dollars out from under the mattress and convert them before the November 8th deadline; but after that it may not make too much difference to them, nor to tourists. The 10% commission will not apply to other currencies. Indeed Mr Castro encouraged Cubans to ask their relatives abroad, who send home some $1 billion a year, to switch to other currencies for the transfers.

Rather, the latest move seems designed both to restock the government's dollar reserves and to re-assert its authority over the financial system. Indeed, it makes a certain sense. It is not easy running monetary policy in a dual-currency system when the country that issues one of the currencies is doing its darnedest to prevent you from getting any. Under America's four-decade-old economic embargo, only the Treasury can allow the use of dollars in transactions with Cuba.

But this also means that Mr Castro has once again been able to use the embargo as a pretext for imposing new restrictions on his people. As part of what he calls America's "imperialist economic warfare", Mr Castro cited the $100m fine that the Federal Reserve imposed on UBS, a Swiss bank, in May, for illegally transferring freshly printed dollar notes to Cuba. According to some reports this had made it harder for Cuba to renew its stock of dollars in circulation. Hours before Mr Castro's announcement, the Treasury had announced sanctions against Sercuba, a company with offices in Cuba and Europe that allows Americans to send money to Cuba via a website.

From New York Times

November 5, 2004

 

CUBA: DOLLAR BUYS ANOTHER WEEK Because of the huge demand to dispose of the United States bills that were legal tender in Cuba for a more than a decade, the Central Bank said that people will have an extra week to exchange their American money for a local currency tied to the dollar. Cuba's government announced on Oct. 25 that the dollar's use in the domestic economy would end on Nov. 8. The need to extend the two-week transition period indicated that economic planners underestimated how many dollars had entered the country. The Central Bank said the new deadline to exchange dollars into Cuban pesos without paying a new 10 percent surcharge will be Nov. 14, rather than Sunday. Despite the extension, Cuban businesses must still refuse American dollars beginning Monday, as earlier announced. (AP)

 

http://www.nytimes.com/2004/11/05/international/05briefs.html