Dollar's Purchasing Power Dwindles in Cuba

April 7, 2005 — -- For many Americans, recent actions by Cuba that cheapened the dollar do not matter. After all, the U.S. embargo prohibits most travel to the Communist-run island unless licensed by the Treasury Department. But for those who do visit or send money there, in particular Cuban-Americans, have seen the greenback's purchasing power fall 20 percent over the last six months.

"This place was already expensive," said a U.S. businessman who visits often to sell food to the government, referring to the minimum 140 percent sales tax at state-run hard currency shops.

"But over the last six months it has become worse than any other country I do business with," he said, like others asking his name not be used.

"Because of the sales tax my dollar was already worth only around $0.40 at the stores, and now it is worth even less," he said.

As of this weekend the locally printed foreign exchange equivalent, the convertible peso, is worth 8 percent more against all currencies, including the dollar. The revaluation follows the replacement of dollars by convertible pesos as legal tender last November and a 10 percent tax slapped on the U.S. currency

For over a decade one could spend dollars freely in Cuba at tourist spots or more than 5,000 state-run dollar-based stores, gas stations, eateries and clubs, without paying any exchange fee, or send dollars to relatives to do the same or exchange them for traditional pesos, 25 at the current exchange rate. But no more.

In November the dollar, which had circulated freely in Cuba, 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 traditional peso, which has little value inside the country.

Cuban President Fidel Castro has declared war on the dollar. The veteran U.S. foe, now 78 and in power for 45 years, blames the Bush administration's efforts to block foreign banks from processing greenbacks obtained legitimately from family members in the United States or through tourism.