ECONOMY: U.S. Dollars No Longer Accepted in Cuba

By Dalia Acosta Reprint | | Print |

Dalia Acosta

HAVANA, Oct 26 2004 (IPS) - A Cuban Central Bank resolution will bring an end to the circulation of U.S. dollars, which had been accepted as legal tender on the island since 1993, alongside the Cuban national currency.

As of Nov. 8, all of the businesses that previously accepted payment in U.S. dollars – including shops, restaurants, bars and taxis û will only take so-called – convertible pesos”.

Convertible pesos were originally introduced in December 1994 and could be used interchangeably with U.S. dollars up until now in establishments operating in hard currency. The Cuban peso is not convertible on the world market and can therefore not be used in hard currency shops and other businesses.

Convertible pesos can be purchased by both Cubans and foreigners in banks and currency exchange houses, although there will now be a 10 percent tax charged for this transaction when payment is made in U.S. dollars.

ôThis is not a change in the exchange rate between the dollar and the convertible peso, which continues to be one to one, but simply a tax on the purchase of convertible pesos with U.S. dollars,” explained Cuban President Fidel Castro.

Castro appeared on Cuban national television just five days after a stumble and fall that left him with a fractured knee and arm.

The new measure was adopted as a response to actions recently taken by the U.S. government of George W. Bush aimed at further obstructing Cuba’s access to U.S. currency and its ability to use the dollars acquired through the tourism industry and money transfers sent to Cubans from relatives living abroad.

The economic sanctions adopted by the United States against Cuba over 40 years ago prohibit the small Caribbean island from using the U.S. dollar in international commercial transactions.

Earlier this month, Daniel W. Fisk, the U.S. deputy assistant secretary of state for Western hemisphere affairs, announced the creation of the Cuban Asset Targeting Group to identify and obstruct the movement of hard currency in and out of the island.

The message from Castro, read by his top aide, Carlos Valenciaga, while the president looked on, stressed that the new tax is not being applied as a means of collecting hard currency for the state coffers, but rather to protect the country from the impact of U.S. aggression.

It will serve as ôcompensation for the costs and risks to the national economy caused by the use of U.S. dollars,” according to the Central Bank resolution, dated October 23.

It was emphasised that this tax will only be charged when U.S. dollars are used to buy convertible pesos, and will not apply to any other currency.

The euro, Canadian dollar, pound sterling and Swiss franc ôwill be exchanged for convertible pesos with no tax whatsoever, in accordance with the currency exchange rates on the international market,” the resolution states.

Anyone currently in possession of U.S. dollars can use them to make purchases or exchange them for convertible pesos without paying the 10 percent tax until the new measure takes effect on Nov. 8.

Castro said that the announcement had been made sufficiently in advance to ensure that no one was adversely affected by the decision.

ôPeople who normally receive money from abroad will now have two weeks as of today to make arrangements with their families, if they so wish, to tell them not to send money transfers in U.S. dollars in the future.”

Roughly one billion dollars enter Cuba every year in the form of remittances sent from abroad. Although exact figures vary, depending on the source, the bulk of this amount comes from the United States, where the Cuban émigré community comprises around 1.3 million people.

As of Nov. 8, neither individuals nor companies will be able to make deposits in U.S. dollars in Cuban banks. In the case of foreign companies, the Central Bank will allow some exceptions, although the 10 percent tax will be applied.

However, any bank accounts currently holding U.S. dollars will be respected, and the money in them can be withdrawn in either dollars or convertible pesos, with no penalties.

Operations in any other currency will continue to be conducted as usual. In some popular Cuban tourism destinations, like the beach resort of Varadero, the euro circulates as legal tender, and will continue to do so.