Castro Moving Away From the Dollar

Fidel Castro is seeking to limit the use of the dollar in Cuba by assessing a 10% commission for exchanging dollars.

Foreign executives said the impact on their operations will be negligible. Western diplomats saw the announcement as a clever bid to rake in dollars the cash-strapped state needs to import food and oil.

As of Nov. 8, the Central Bank decreed that Cubans, foreign residents and tourists will have to use locally printed convertible pesos, pegged at present to the dollar, for cash purchases in stores, restaurants and other businesses.

Both of the comments in the first paragraph are probably true, but that doesn't stop Bloomberg.com from swallowing the Bush administration triumphalism here:

Castro's move is "an act of economic desperation and a clear signal that President Bush's strengthened policies towards Cuba have hurt the Castro regime,'' Juan Carlos Zarate, the U.S. Department of the Treasury's assistant secretary for terrorist financing and financial crime, said in a statement.

What the Bloomberg report fails to mention and the Reuters report does mention is this:

A 10-percent commission will be charged for changing dollars into pesos, but not for other currencies. [my emphasis]

Advantage, Reuters. So what I imagine Castro, the old bastard, is trying to do is a twofold scheme:

1.) Get a fast infusion of dollars as people rush to beat the deadline and pocketing ten cents on the dollar for a while as dollar remittances continue.

2.) Shift his focus from the dollar to the Euro and if the folks at Bloomberg would bother to read their own website, they might have seen the case for this.

What I think will eventually happen is that the Cuban-American community in Miami will start setting up a system to send remittances in Euros and who can blame them? Meanwhile, these comments really encapsulate the situation:

Western observers said the measure would allow the Central Bank to quickly absorb dollars now on the island.

"They just want to get those dollars out from under the mattresses and get people to start using Mickey Mouse money," said a European diplomat, who asked not to be named.

[...]

Ordinary Cubans, facing the 10 percent levy, said they were paying for the ideological war between Washington and Havana. Some said they would ask relatives in Miami to start sending euros.

"Fidel wants to recover the greenbacks and squeeze the people," grumbled Alfredo, a cafeteria employee.

[...]

Some Cubans said they were not concerned about the switch.

"I don't think about it. I'm leaving the country," a Havana resident said.

I couldn't agree more with all three of them.

Comments

[Tom DC/VA]

Maybe he just doesn't want to be stuck holding the bag when the dollar collapses, which is quite likely according to the gloom and doom crowd.

[Val Prieto]

Do you really think many "Miami Cubans" will exchange their dollars to Euros in order to send them to relatives on the island? They would have to first deal with an exchange rate, plus a fee for the exchange. Then they would have to pay the fee to have the cash transferred illegally to Cuba. If I am not mistaken, there is also a fee to receive the cash in Cuba.

Seems like a bad move to me on Castro's part.

[Randy Paul]

Well, I would imagine that part of his move is to get as many people as possible between now and November 8 to exchange as many dollars as possible.

The Euro is trading much stronger against the dollar which may be part of his motivation. On the other hand if he really wants to make life difficult for Cubans in Cuba and try to blame it on the US this is probably the way to do it. The Reuters article seems to indicate that only the hardliners are buying it.

As I said on Marc Cooper's site, he may also be doing it simply because he can.