Tuesday, November 9th 2004 - 20:00 UTC

“Chavitos”, Cuba's new convertible currency

The Cuban Convertible Peso, CUC, or “chavitos” as they are called locally became effective this Monday substituting the widely circulated U.S. dollar, with the Central Bank stating that control over the nation's money circulation underlines sovereignty and helps order money liquidity.

"Circulation of the U.S. dollar was hampering assessment and regulation of liquidity in the country," Central Bank Vice President Rene Lazo told the Trabajadores weekly.

The bank can now "play a greater role in order to maintain an appropriate balance between currency in circulation and the supply of goods and services, an essential ingredient for ensuring that the Cuban currency holds its value," he said.

The Cuban convertible peso or "chavitos" are equivalent to one US dollar.

However the "convertible" description of the new currency is questioned since it's only accepted in Cuba although it became legal tender for the chain of "dollar" stores that offer merchandise unavailable elsewhere in the Cuban market.

"From the point of view of the country's sovereignty, this step has far-reaching implications," said Mr. Lazo, who described the policy as "one of the Revolution's most complex financial transactions".

In 1993 Havana accepted the private possession and circulation of US dollars next to the Cuban peso, which is currently worth 26 to the dollar at official exchange houses.

As of Monday, "chavitos" is the only money accepted in commercial establishments that operate with foreign currencies including special stores, hotels, restaurants and taxis.

A 10% tax on dollar-CUC exchange transactions has been pushed back and will now take effect on November 14 because of the strong demand for the new currency.

The tax, which takes effect Nov. 15, extends to dollar remittances Cubans receive from their families abroad, mainly from the U.S. where an estimated 1.3 million Cubans live. Those who receive remittances in U.S. dollars will lose 10 percent of the total amount.

To avoid this loss, their families in the U.S. must send money in any of the other currencies accepted in Cuba.

Unofficial estimates indicate that a third of the 11.2 million inhabitants of the Caribbean island receive remittances from their families overseas.

Similar estimates note that these remittances total between $800 million and $1 billion a year. While there are no official figures, it looks to be the second largest source of income for the Cuban economy after tourism, which brings in some $2 billion a year

Other currencies accepted in Cuba, including Euros, Swiss francs, pounds sterling and Canadian dollars are exempt from the fee. According to the Central Bank, more than 700,000 Cubans had opened new accounts or exchanged U.S. dollars for Cuban pesos or convertible Cuban pesos less than one week after the announced change.

Additionally according to the Cuban Central Bank funds received by the island's banks over in three days equalled the amount taken in over the last four years.

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