Cubans Exchange Millions of U.S. Dollars for Convertible Pesos, Which are Worthless Outside Cuba

By MARC FRANK

Nov. 9, 2004 - Cubans have been fetching their precious U.S. dollars from every conceivable hiding place -- cans buried in patios, a wooden box under a tile in the kitchen, the roof over the pigpen, a hollowed-out coconut or old book, the traditional cupboard and mattress.

An astounding $500 million has come out of the woodwork in the past two weeks, local economists estimate, and been turned in for convertible pesos -- which are not worth the paper they are printed on outside the country.

On Monday the dollar, which has circulated freely in communist Cuba for more than a decade, was no longer usable for any transactions. The convertible peso -- which was introduced in 1994 but was never accepted by businesses or residents -- became king by decree alongside the peso, which has little value inside the country.

But Cubans had a powerful incentive to dump their dollars for the convertible peso. Beginning Nov. 14, a 10 percent levy will be charged to change U.S. currency into the convertible pesos. (Euros, Canadian dollars and other currencies can be exchanged at the market rate.)

"What I had was hidden behind a picture of the Virgin of Charity [Cuba's patron saint]. I changed them for chavitos [a street term for convertible pesos that implies worthlessness] and I'm looking for a new place to hide them in case the virgin does not approve," said Juan, a produce market worker, who like others asked that his last name not be used.

Castro's Decree

On Oct. 25, President Fidel Castro, his left leg and right arm in casts after shattering a knee and fracturing an arm in a fall five days earlier, went on television to announce the decree eliminating the U.S. dollar from circulation, banking on popular sympathy to soften the blow.

The veteran U.S. foe, now 78 and in power for 45 years, blamed the Bush administration's efforts to block foreign banks from processing greenbacks obtained legitimately from family members in the United States or through tourism.

Remittances were estimated at more than $800 million last year. Tourism and related revenues totaled $2 billion, or more than 40 percent of Cuba's estimated hard currency earnings.

The average monthly wage of 250 pesos, equivalent to around $15, is not enough to make ends meet.

Cubans scrape together dollars any way they can to purchase basics like cooking oil, shoes, detergent and shampoo, available only in government-operated dollar shops. Some engage in petty theft or banned private initiatives. Others receive dollar bonuses and tips, or money from relatives in the United States.

"I took out what I had buried in the patio. Fidel said the dollar fiesta was over and it would not be wise if later they hit me with the 10 percent tax," said Roberto, 65, who has three sons in the United States who regularly send him money.

The Rush of Returns

Many Cubans do not keep their legitimate or questionable earnings in state banks. More than twice the dollars deposited over the last four years appeared in two weeks, according to bank sources. Local economists believe what was turned in is not even half of the dollars stashed away in the country.

The U.S. embargo forbids anyone from in engaging in dollar transactions with Cuba unless licensed by the Treasury Department.

The Federal Reserve recently fined Switzerland's largest bank $100 million for illegally transferring freshly printed dollar notes to Cuba and three other countries subject to U.S. sanctions, and the Treasury Department established a special team to follow Cuba's dollar trail.

"We hit the U.S. government where it hurts," Cuban Central Bank President Francisco Soberon said. "We have withdrawn their money from circulation and enhanced our sovereignty."

Exchanging 'Gold for Paper'

The United States does not agree. The State Department called it a "confiscatory measure" by Castro that indicated U.S. sanctions were squeezing his treasury.

"It shows that he's cynically trying to preserve a bankrupt regime at his people's expense," State Department spokesman Adam Ereli said.

But most foreign businessmen in Cuba have applauded the measure.

"When a ruler can convince his people to exchange gold for paper, he is indeed a magician," one foreign banker quipped.

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