The State Department says Cuba's move to ban the circulation of dollars underscores the weakness of Fidel Castro's communist government. Starting November 8, Cubans and visitors to the country will be required to use so-called "convertible" Cuban pesos for all transactions.
The decision announced late Monday means that Cubans wishing to spend the U.S. dollars they hold will have to exchange them for local "convertible" pesos, pegged to the dollar, with a ten percent commission going to the Havana government.
President Fidel Castro took part in the televised announcement, in the first public appearance for the 78-year-old Cuban leader since he fell and broke an arm and knee at a political event last week.
Cuban authorities said the move was retaliation for steps by Bush administration last May to put economic pressure on the Castro government by among other things curbing remittances by Cuban-Americans to relatives in Cuba.
However, some U.S.-based economists say it is simply an effort by Havana authorities to gather in some scarce hard currency.
At a news briefing here, State Department Deputy spokesman Adam Ereli described the dollars-for-pesos exchange requirement "draconian," and said it shows that Mr. Castro is "cynically trying to preserve a bankrupt regime" at his peoples' expense.
"We see it is a confiscatory measure that demonstrates that President Bush's policy is working," he noted. "It's squeezing the regime, and causing them to take extreme measures that underscore its own inherent weaknesses."
With Cuban-American remittances to the island estimated to be as much as $1 billion a year, the ten percent conversion fee will generate a sizable windfall for the Castro government.
The fee, which will also be paid by foreign tourists in Cuba, will apply only to U.S. dollars, and Cuban officials encouraged Cubans living abroad to remit other currencies such as Swiss francs or Euros.
Dollars have been in wide circulation in Cuba since 1993, when Mr. Castro legalized the U.S. currency following the collapse of the Soviet Union and the loss of subsidies to Cuba from Moscow and its allies.
As part of a package of steps aimed at speeding a political transition in Cuba, the Bush administration in May put new restrictions on remittances by Cuban-Americans, limited family visits to the island to once every three years, and slashed the amount of money they can spend there each day from 165 dollars to just 50 dollars.