LA ALBORADA: "The Value of a Dollar in Cuba" (addresses remittances)

[magbana]

http://www.cubamer.org/

LA ALBORADA: The Value of a Dollar in Cuba
Posted by: "Jane Franklin" [e-mail]
Mon Apr 20, 2009 1:06 pm (PDT)


The Value of a Dollar in Cuba
La Alborada - April 20

The Cuban currency is the peso. The CUC is a special second currency for use by foreign travelers. Last we checked (CoinMill.com, updated on April 17, 2009 from the International Monetary Fund), the U.S. dollar loses eight cents when converted to CUC at the official fixed rate. It is legal to hold dollars in Cuba. The dollar, however, is not now legal tender, and a person wanting to spend dollars in Cuba is charged a 10% fee for conversion to any of the legal currencies. The total is probably what President Obama referred to when he complained in Trinidad that Cuba takes "a lot off the top" from remittances. His adviser Dan Restrepo calls the exchange "usurious." Another adviser, David Axelrod, without explanation took the figure up to 30% on Face the Nation on April 19.

On April 17, Bloomberg reported as follows:
About 60 percent of the money sent to Cuba goes via electronic wire transfer, according to the Inter-American Dialogue study. The rest travels in the pockets of visitors. These mulas, Spanish for mules, bypass the government fees.

“If you send by wire, it’s very expensive because the government takes 20 percent,” said. “But if a friend goes there, you can give it to them.”

On the other end are charges by transfer agents. Calls to wire services in Miami found fees of as much as $124 to deliver 100 pesos to a recipient in Cuba, or 24 percent.

The latter, private-sector, transfers are not described as usurious by anyone in the U.S. government.

Aside from the technical details, seldom found in mass-media reports, what should be interesting is why the government charges exist. They came into being in 2005, when Cuba declared that the economy had improved sufficiently, after the years of the Special Period, to revalue the currency against the dollar.

During the Special Period the economy nosedived as a result of the collapse of the socialist block and of the Torricelli and Helms-Burton laws passed by the U.S. Congress. The economy had become dollarized, and Cuba did not wish to depend on the currency of another country that by law was--and still is--mandated to strangle the Cuban economy. In addition, the Treasury Department's Office of Foreign Asset Control (OFAC) had begun to strong-arm every bank it could find in the world with a Cuban dollar account in order to close down the account and come a step closer to its goal of paralyzing Cuban commerce.

Cuba, in short, responded to a further tightening of the blockade in order to defend its economy.

The current position of President Obama and his advisers is that, before the U.S. can consider undoing the blockade, Cuba should take certain steps, including doing away with these actions it took in response to the blockade. It is a circular proposition: we may undo the blockade if you first allow it to work.

It is also the case that both the President and the Secretary of State have admitted that the policy of blockade has failed. That notwithstanding, the blockade will be kept in place as leverage to pressure Cuba into changes that the US requires in an exercise of its self-declared mission of deciding what Cuba may do.

The U.S. has specified other measures it expects Cuba to take before it moves further, but it is not likely to see those without prior discussion of what actually is at issue. Because the President must focus on the continuing economic crisis, he no doubt depends on his advisors for getting the facts straight. But, as Mr. Axelrod's statement on TV demonstrates, even the President's special advisers are not well informed.

We hope that serious conversations take place soon.

[magbana]

1. IMPORTANT UPDATE

Jane Franklin, who sent in the original article, has provided additional important info.
magbana

My friends Michael Rivas and Bob Guild sent me some additional information about those charges on remittances. Please see their additions below.
Jane Franklin
http://ourworld.compuserve.com/homepages/jbfranklins

Here are Michael Rivas's comments:

The issue of the foreign banks as described in this article is very important. There are a number of banks overseas who in cooperation with the Fed receive worn out bills in US currency and give the banks tendering those bills new currency. The Fed does this to retire from circulation the old bills. Cuba was using that system just as in any other country. Bush ordered those banks not to conduct transactions with Cuba, which created a problem for Cuba with the bills they had in hand. Thus part of the fee is to account for the extra risk of having those US bills around. The other fee is simply a new exchange rate as described in this article. The other elements are as described here regarding not wanting to have foreign currencies other than Cuba's circulating as legal tender, not just the dollar. All other currencies are exchanged for CUCs and not just the dollar, but they are not charged the extra fee since they are exchanged using the floating rates used in the world financial markets. So, the total fee on the dollar is 18% not the 30% cited by Axelrod.

Since dollars don't circulate as payment for anything, smuggling dollars into Cuba doesn't by-pass the fees. Whoever gets a dollar
either via the electronic process or smuggled in, has to change them for CUCs at the bank, hotel, or exchange stores.

Best, Michael

---
And here are Bob Guild's comments:

The 10% fee when exchanging into Convertible Cuban Pesos (CUC's) only applies to the exchange of US Dollars. It does not apply when exchanging Euros, Mexican Pesos, or Canadian dollars into CUC. The reason for this is that Cuba wanted to reduce the amount of USD cash it was receiving because the US government - under Bush - was running around the world demanding that foreign banks not accept money from Cuba if it was in USD cash.

- Bob

[magbana]

2. Nelson Valdes Weighs In As Well

Re: More about Obama's demand for reduction of those charges on remi
Posted by: "NPV" [e-mail] nvaldes05
Mon Apr 20, 2009 6:40 pm (PDT)




Western Union charges 15% per $100 to send to Cuba and up to 30% for $300.

Source: http://news.yahoo.com/s/bloomberg/20090417/pl_bloomberg/aonduw5gdrcy

NP Valdes

[Judi Lynn]

3. Kicking for Jane Franklin and Nelson Valdez's comments to read later. Thank you! n/t