[Marxism] Reasons behind Cuba's dollar ban

Walter Lippmann walterlx at earthlink.net
Mon Nov 22 11:29:20 MST 2004


This discussion in the Orlando Sentinel is well-reasoned.
The author is trying to understand and explain the Cuban
government's actions, not trying to bash Cuba from hell
to breakfast. His discussion is worth careful study.

When I came through Mexico City on my current trip to
Cuba, the only place I could use my U.S. dollars was
at the airport in Mexico City. The U.S. dollar isn't
accepted elsewhere, and it costs more to use the U.S.
dollar, even in the Mexico City airport, for example
where you can hire a locker to leave luggage during
your time in the city, than it costs to use Mexican
pesos. 

The author states here that "Between $500 million 
and $600 million has been turned in for CUCs in just 
two weeks, representing more than half of all U.S. 
dollars being stored in the homes of Cubans." The
author doesn't say how he knows this. The government
presented figures on the numbers of transactions that
have taken place, and on the numbers of new accounts
set up, but total dollar figures weren't given out.

One can only assume that, given Washington's active
efforts to sabotage the Cuban economy and its steps
to disrupt the island's legal transactions with U.S.
companies, the exact figure would be a state secret.

By its actions, Cuba today has adopted a more normal
relationship with foreign currencies, just as Mexico
has long had. In my experience here in Cuba, the big
transition has gone very smoothly. While I have no
way of knowing what most Cubans did, anecdotally it
seems that most people who had significant amounts
of dollars squirreled away here changed most of them
over into convertibles, either in cash or in Cuban
dollar-denominated bank accounts. Fidel Castro said
on that Mesa Redonda program where the changes were
announced that these were not the last word on the
matter.

There's a giant new CADECA located at 267 Obispo St.,
in the heart of the tourist district. It looks just
like any other money-changing operation anywhere else
in the world, with all the currencies listed and their
daily exchanged rates posted. I believe that there is 
a similar one out at the airport. The U.S. dollar (USD) 
and the Cuban Convertible peso (CUC) are pegged 1-1,
while the other currencies flucturate according to 
market conditions. All stores now have signs up which
explain that they only accept CUC for business, and
I haven't seen any dollars anywhere here except for
the two bills I kept in my wallet as souvenirs.

>From what I can see, Havana is crawling with tourists.
>From the accents, clothing and their general demeanor,
it's apparent that the great bulk of these are European.
Since most of the tourists are not from the U.S., this
measure will make THEIR visits easier since then now
won't have to change their Euros, Canadian dollars 
and etc, over into dollars before coming here. They
will just change their currencies into convertibles
on the way in, and back to their own currencies on
the way out, just as in any other country.

The new five peso convertible coin is peculiar in that
it is much smaller than and weighs much less than the
regular Cuban pesos coin denominated at three regular
Cuban pesos. Both coins have the image of Che Guevara
on them. The new coin, which is oddly dated 1999, even
though it was only issued publicly this fall, seems to
be one which could be very easily lost because it's so
small. I've only bought one, because I know how easily
I could lose one of them, but I do want to be able to
show it to people. No one has yet handed me one as
change for any business transaction.

For context, here's that Wall Street Journal article
about the current troubled state of the U.S. dollar:
http://groups.yahoo.com/group/CubaNews/message/32533 


Walter Lippmann, CubaNews
http://www.walterlippmann.com 
=======================================================

Reasons behind Cuba's dollar ban 
By Paolo Spadoni 
Special to the Orlando Sentinel

November 22, 2004

About three weeks ago, the Castro government announced its
intention to eliminate the commercial circulation of the
U.S. dollar in Cuba in favor of the convertible peso or
CUC, a local currency that is pegged at par with the dollar
but has no value outside the country. According to
Resolution 80 of the Cuban Central Bank, which went into
effect Nov. 8, the U.S. currency can no longer be used in
hotels, restaurants, bars, gas stations and any other
retail store in the island. Cuban citizens, foreign
residents and international visitors must now use
convertible pesos and, as of Nov. 14, a 10 percent
commission is applied on dollar/CUC exchanges.

Why did the Castro government take steps to end circulation
of the U.S. currency in Cuba?

In the short-term, there is little doubt that Cuba's dollar
ban will increase the hard currency liquidity of a
government that is facing a chronic foreign exchange
crisis. In order to avoid the 10 percent charge, Cubans
rushed to exchange most U.S. dollars they hoarded at home
for convertible pesos or opened accounts in local banks as
hard currency deposits made prior to Nov. 14 can be
withdrawn at any time either in dollars or convertible
pesos without having to pay the 10 percent commission.
Between $500 million and $600 million has been turned in
for CUCs in just two weeks, representing more than half of
all U.S. dollars being stored in the homes of Cubans.

The prospect of higher revenues to the government, however,
is not the main reason behind Cuba's currency move. In the
past few months, the Bush administration has stepped up
pressure on foreign banks to prevent Cuba from depositing
U.S. dollars abroad to fulfill its trade obligations. In
order to minimize this problem and build a new hard
currency base, which can be deposited abroad more easily,
Resolution 80 establishes that the 10 percent commission
applies only to dollar-CUC exchanges while there is no
charge to change other foreign currencies.

The idea is to stimulate Cubans in the United States to
convert their dollars for euros or other currencies before
remitting to family members in the island as well as to
provide incentives for international tourists, mainly from
Europe and Canada, to travel to Cuba with their own
currency and purchase convertible pesos once there rather
than buying U.S. dollars prior to departure.

In addition, the circulation of the convertible peso in
substitution of the U.S. dollar is the first step toward
the adoption of a single currency in Cuba. We must remember
that Cubans also use another currency, the regular Cuban
peso, mainly for household utility payments and for
purchases of pork meat, fruits and vegetables at farmers
markets.

As many Cubans have exchanged significant amounts of
dollars for regular pesos in the last two weeks to avoid
the 10 percent commission, the Castro government hopes that
the new measure will strengthen the value of the peso
vis-à-vis the CUC (exchange houses currently purchase the
CUC for 26 pesos). Cuban officials have said in the past
that the adoption of a single currency in the island may be
possible by the time the CUC is worth about 12-14 regular
pesos.

Curiously, a five CUC coin bearing the face of
revolutionary icon Che Guevara appeared for the first time
in the Cuban market last week. However, the money was
coined in 1999, at a time when the regular peso had been
strengthening with an exchange rate of 19-20 pesos for one
CUC. Thus, it looks like Cuba's dollar ban has been planned
for a while and it cannot be excluded that five years ago
the Castro government was already close to implementing
such a measure.

Castro's decision to eliminate circulation of the U.S.
dollar is both a response to the Bush administration's
toughened stance on Cuba and a way to move the island
toward the adoption of a single currency. However, such a
policy will have a long-term positive impact on the Cuban
economy only if Cuban authorities are willing to implement
additional reforms aimed to increase production of goods
and services.

The latest changes in Cuba, which are limited to the
financial realm, may run the risk of triggering the black
market in U.S. dollars and leading to a devaluation of the
convertible peso vis-à-vis the U.S. currency. Only a
process of economic adjustment that addresses problems in
the productive sphere may prevent the island's economy from
being back to square one, or even worse, once the
short-term impact of the new currency policy is exhausted.

Paolo Spadoni is a PhD candidate in the Department of
Political Science at the University of Florida. He has just
returned from his sixth visit to Cuba.






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