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NEWS
Sanctions Prompt Cuba to Eliminate Dollar
Tue Oct 26, 7:30 PM ET
By ANITA SNOW, Associated Press Writer
HAVANA - Communist Cuba said "adios" to the Yankee dollar that shored up
its struggling economy for a decade, launching a two-week process
Tuesday to eliminate the U.S. currency from circulation in its stores
and businesses in response to stepped-up American sanctions.
President Fidel Castro said widespread use of the currency of his
country's No. 1 enemy, once seen as a necessary evil to stay afloat
after losing Soviet aid and trade, would be halted to guarantee Cuba's
economic independence.
Cuba is "protecting itself from external economic aggression," Castro
said in a statement he asked his top aide to read on state television
Monday night. The 78-year-old Castro was also there, looking animated
despite the blue sling supporting his broken right arm after a fall last
week that also shattered his left kneecap.
A local currency known as the convertible Cuban peso will be the only
money accepted at most businesses across the island of 11.2 million
people beginning Nov. 8, Castro's statement said.
Before the collapse of the Soviet Union, when Cuba was a major client of
Moscow, Havana was not nearly as reliant on the U.S. dollar or other
convertible currencies because it engaged in barter trade for goods such
as petroleum, food, medicines or manufactured goods.
But after Cuba lost Soviet and other East Bloc trading partners with the
end of the Cold War, the country increasingly relied on dollars to
finance needed imports. By removing the U.S. currency from circulation,
Castro is effectively and symbolically switching his hard currency base
to that of other foreign currencies, including the European Union's
euro, the British sterling pound and the Canadian dollar.
Also, he is adding another step to the process by forcing Cubans in the
United States to convert their dollars to euros or other foreign
currencies before remitting them to relatives on the island. Beyond
that, Cuban recipients of the foreign exchange will now have to
re-exchange them for convertible pesos before using them on the local
market.
Since the American dollar was legalized in Cuba in 1993, Cubans had used
the U.S. currency to buy everything from refrigerators to daily
necessities such as soap, cooking oil and other items not provided in
monthly government rations.
Probably half of all Cubans have access to U.S. dollars, mostly in
remittances from relatives abroad. Others get dollars in tips or through
unauthorized pursuits ranging from private taxi services to
prostitution.
Many Cubans with government jobs also receive part of their salaries in
the convertible pesos — known as "chavitos" — that officially trade
one-to-one with the U.S. dollar. Convertible pesos have long been
accepted in lieu of dollars, but Cubans have preferred the American
bills.
"Every country should have its own currency," John Kavulich, president
of the U.S.-Cuba Trade and Economic Council, said by telephone from New
York. "The trick will be to force Cuban citizens to accept the Cuban
convertible peso and be just as comfortable putting them in their
mattress as their dollars."
Castro told Cubans to tell relatives to now send family remittances in
euros, British pounds, Canadian dollars, Swiss francs — anything but
U.S. dollars.
The other foreign currencies can be changed into convertible pesos at
exchange houses and banks without a fee, he said.
But starting Nov. 8, 10 percent will be charged to change U.S. dollars
into convertible pesos "because of the situation created by the new
measures by the United States government to asphyxiate the country,"
Castro said.
Castro said the move would help protect Cuba's economy as the Bush
administration seeks to punish banks and businesses shipping American
dollars here, despite U.S. sanctions.
The U.S. embargo was imposed in 1963, two years after Castro defeated
the CIA -backed assault at the Bay of Pigs and declared his government
to be socialist. Aimed at undermining Castro's government, the sanctions
prohibit most trade and financial transactions between the two countries
and bar most Americans from traveling here.
Earlier Monday, the U.S. Treasury Department cracked down on an
electronic money transfer business known as Sercuba suspected of links
to the Cuban government.
The U.S. Federal Reserve in May fined Switzerland's largest bank, UBS
AG, $100 million for allegedly sending American dollars to Cuba, Libya,
Iran and the former Yugoslavia in violation of U.S. sanctions.
Other U.S. measures aimed at reducing hard currency in Cuba took effect
this summer, limiting how often Cuban-Americans can visit relatives on
the island and decreasing how much money they can send in.
Although some Cubans expressed concerns the convertible peso would later
be subject to the same devaluation pressures of other Latin American
currencies, most didn't seem worried.
"This won't affect anything," Aurelio Serra said outside a Havana
exchange house. "If money is sent here in another currency that is not
the dollar, then nothing will be lost."
"The measures don't affect me," said Coralia Bauta, a cleaning woman who
receives 10 convertible pesos as part of her monthly government salary.
People lining up at banks and exchange houses Tuesday were told to
return Thursday, when tellers expected they would have enough
convertible bills to change U.S. dollars. There was no run on changing
money and stores seemed no busier than usual.
In a country where the average government salary is less than $15 a
month, most Cubans pay no rent, enjoy heavily subsidized utility
services and public transportation and free health care and education.
Government rations provide about a third of the food Cubans eat. But the
rest — especially soap, detergent, cooking oil and the occasional piece
of meat — is bought with American dollars. Produce is purchased at
farmer's markets in Cuban pesos, yet another local currency that now
trades at 26 to the dollar.
Holding American dollars was once punishable by jail time, but once the
dollar was legalized, the government opened stores, restaurants and
other businesses to capture hard currency to buy petroleum, food and
other imports from abroad.
Although euros are accepted in a few resorts, the U.S. dollar has been
the primary currency demanded at hotels and other tourist installations.
Foreign companies doing business in Cuba pay rent, utilities, and all
other services in American dollars.
Castro said the latest move did not criminalize U.S. dollars and Cubans
can still hold unlimited amounts of American money. Existing bank
accounts in U.S. dollars will be respected, he said, and withdrawals can
be made in American money.
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