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Posted November 05, 2004 by publisher in Business In Cuba

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By Anita Snow | The Associated Press

The central bank president says he is committed to keeping the Cuban peso’s value on par with the U.S. dollar in the wake of his country’s decision to remove the U.S. currency from circulation.

For the past decade, the dollar has been the primary form of legal tender in Cuba. But last week, President Fidel Castro said starting Monday, stores and businesses will no longer accept the dollar, blaming a U.S. crackdown on foreign banks that send U.S. dollars to Cuba in violation of trade sanctions.

The dollar’s replacement, the convertible peso, is pegged one-to-one to the U.S. currency.

“It would be extremely unwise for us to change the one-to-one exchange rate after the Cuban people have shown such confidence in the Cuban government,” central bank chief Francisco Soberon said this week, responding to fears of a devaluation.

Many Cubans have expressed worries the convertible peso will lose value.

“We have to keep the rate one-to-one to the dollar, and we are prepared to do that,” Soberon said.

The dollar is not banned and Cubans can still save in dollar bank accounts. But starting Monday, Cubans will have to pay a 10 percent surcharge to change dollars into convertible pesos, though dollars can be bought at no additional charge.

Soberon also said authorities have been surprised at the large amounts of dollars Cubans have changed over the past week to avoid the new surcharge.

“It’s been above our expectations,” Soberon said of the quantities changed. “A lot of people are opening accounts in important amounts of money. We didn’t know how much people were saving under their mattresses.”

Soberon declined to estimate how much had been changed thus far, saying he didn’t want to provide ammunition for Cuba’s enemies. He did say that in the first week there had been 700,000 transactions to exchange dollars or open dollar accounts across the island of 11.2 million people.

Some independent analysts have estimated that several hundred million dollars will be exchanged into convertible pesos during the two-week transition period.

Last week, there were numerous reports of smaller money exchange operations in Havana shutting down early after their daily allotment of 50,000 convertible pesos ran out. Nevertheless, Soberon insisted that Cuba “without doubt” had enough convertible pesos to meet the demand.

Soberon said the 10 percent surcharge was to discourage people from bringing or sending in more dollars.

Cuba has said the measure is necessary to protect the country from an increasing U.S. crackdown on foreign banks sending dollars to Cuba.

Soberon downplayed the impact the measures could have on family remittances, mostly sent by relatives in the United States in dollars.

While some estimates place Cuba’s remittances as high as $1 billion annually, that is a fraction of the $9.3 billion in foreign exchange that flows into Cuba each year, the central bank chief said.

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