Cuba says it is to ban commercial transactions in dollars from 8 November in response to tighter US sanctions.
Many Cubans rely on dollar remittances from relatives in the US
Dollars were made legal tender in 1993 following an economic crisis sparked by the collapse of the Soviet Union.
But dollars will no longer be accepted in shops and other businesses, and tourists and Cubans exchanging dollars will have to pay a 10% commission.
Cuban leader Fidel Castro appeared on TV to endorse the measure, despite suffering a bad fall last Wednesday.
"The empire is determined to create more difficulties for us," he said, referring to the US.
In May, the US announced it was tightening its embargo on Cuba, with measures including capping the remittances sent to the island by Cubans in the US.
In response, said the Cuban central bank in a statement, dollars would no longer be accepted in shops and businesses.
They will have to be exchanged for "convertible pesos" - a local currency that can be used in special shops on the island but has no value internationally - for a 10% charge.
Following the economic crash of the 1990s, and the legalisation of the dollar, many Cubans have become dependant on dollars for many goods, including some basic necessities.
The Cuban government closed down so-called dollar stores in immediate response to the US measures in May, but most reopened two weeks later.
Mr Castro said the measure did not signal the outlawing of the dollar. Cubans will still be allowed to hold an unlimited amount of dollars, and they will be able to exchange them without charge until the new law comes into effect in two weeks.
But it will mean an additional burden on Cubans abroad who send remittances in dollars - pumping up to $1bn into the Cuban economy each year.
In his message, Mr Castro urged Cubans to tell relatives to send money in other currencies, such as euros, British pounds or Swiss francs.
Our correspondent in Havana, Stephen Gibbs, says this measure will enable it to receive and control far more of the hundreds of millions of dollars that tourists and Cubans living abroad bring or send here every year.
It was Mr Castro's first public appearance since last Wednesday's fall, when he fractured his knee and right arm.
Mr Castro, sporting a royal blue sling, joked about the fall in his TV appearance to back the new measure.
"I recommend you all take care descending the stairs," he said at the end of the broadcast.