Cuba Says 'Adios' to U.S. Dollar

HAVANA – Communist Cuba (search) 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 (search) 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 (search), 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.