By Serge F. Kovaleski
                  Washington Post Foreign Service
                  Sunday, March 21, 1999; Page A25

                  HAVANA—One of the many contradictions of this impoverished
                  communist country is its reliance on the U.S. dollar. Six years ago,
                  President Fidel Castro reluctantly legalized use of the currency to
                  encourage tourism and accommodate the heavy flow of remittances sent
                  by Cuban Americans to their relatives here. Today there are shops and
                  restaurants that accept nothing else.

                  But the government has never been happy about the presence of the dollar,
                  and not just because Castro considers it a vile symbol of Yankee
                  imperialism. Because of the prolonged U.S. economic embargo against
                  Castro's regime, Cuba has long had difficulty using the dollar -- which
                  dominates the world economy -- in commerce with other nations. As a
                  result, the government pays large commissions and other fees -- a reported
                  $260 million last year -- to financial institutions to change dollars into other
                  currencies, as well as cover other complex transaction costs.

                  So Cuba is preparing to embrace an alternative: the euro. Havana officials
                  hope the new currency will help them build trade ties with Europe and aid
                  Cuba in its nearly four-decade struggle against U.S. isolation efforts.

                  Cuba plans to start using the common currency on July 1 in transactions
                  with the 11 European Union nations that adopted it at the beginning of the
                  year. The Cuban weekly newspaper Juventud Rebelde, the official
                  publication of the Union of Communist Youth, recently said that the
                  country's state-run firms also should prepare to pay in euros when trading
                  with other communist countries -- China, North Korea and Vietnam --
                  beginning next January.

                  The euro currency is scheduled to start circulating in Europe in three years,
                  at which time, Cuban officials say, they will introduce the money
                  themselves -- most likely beginning with the thriving tourist sector. Now,
                  the 11 European nations that have joined the program have fixed their
                  national exchange rates to the euro and are using the new money for
                  computerized and credit card transactions.

                  Cuban officials said that at this stage it is unclear to what extent the dollar's
                  dominant role in Cuba's economy could be diminished. One high-ranking
                  Central Committee official said it is unlikely the greenback will ever be
                  phased out because it is needed for the remittances from overseas
                  relatives, which total about $800 million a year and are Cuba's
                  second-largest source of hard currency.

                  But for now, the government is counting on the euro to help it circumvent
                  the embargo and strengthen the island's commercial ties with Europe, its
                  largest source of trade, visitors and credit.

                  Cuba conducts more than 40 percent of its international commerce with
                  Europe while upward of 50 percent of its tourists are European. Most of
                  Cuba's debt, largely short-term, has been negotiated with European banks.

                  "The euro could be an effective weapon in the fight against the embargo,"
                  Ana Mari Nieto, a euro specialist at the Central Bank of Cuba, said in an
                  interview. "From a commercial point of view, we have a very strong
                  relationship with Europe. And from a credit point of view, Europe is also
                  the principal source of credit."

                  Trade with Europe is critical for this nation, which lost 85 percent of its
                  markets with the collapse of the Soviet Union and its communist satellites
                  in Eastern Europe. Cuba is not a member of the International Monetary
                  Fund or the World Bank and has had difficulty obtaining credit from other
                  sources.

                  A senior State Department official contended that reviving Cuba's
                  economy is not a question of using a new currency but of Castro allowing
                  more opportunity for private enterprise, which is tightly restricted here.

                  Central Bank President Francisco Soberon has been cautious in
                  speculating about the extent to which use of the euro can better the
                  country's economic problems. "More than anything else, it means
                  prospects for improving the present situation," Soberon said at a recent
                  conference on the euro here.

                  Much depends on whether any countries in Latin America -- where the
                  dollar is widely used -- or elsewhere decide to adopt the euro too. If not,
                  Cuba would still be subject to paying currency exchange commissions to
                  trade with those nations.

                  "The euro may become the rival to the U.S. dollar as the international
                  currency, and where we are able to use the euro we will use it," the Central
                  Committee official said.

                  Analysts said that Cuba's decision to embrace the euro could make it
                  easier for the government to obtain credit as the European Union moves to
                  create euro reserves around the world.

                  Castro clearly relishes the idea that the dollar may now face a challenge
                  from the euro. "The dollar and the euro are keeping watch over one
                  another. The dollar now faces a prospective adversary," the Cuban leader
                  said during a recent speech. "The United States is anxiously wagering that
                  the new currency will struggle and fail. We are keeping a close eye on
                  events."
 

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