Colón takes rollercoaster ride with the dollar

December 24, 2008

Costa Rica´s exchange rate with the United States, which was firmly attached to the upper colón-to-dollar limit for most of 2008, has taken a rollercoaster ride the past few months.

In November and December, the price rose and fell dramatically, fluctuating by up to ¢40.

On Dec. 15, the average buying exchange rate was about ¢538, a drop of over ¢23 from the exchange rate a week earlier of ¢561 per one U.S. dollar. As of Monday, a dollar was worth ¢540.

The Central Bank ensures that a dollar can be worth no less than ¢491 and no more than ¢569 (TT, May 16) by buying and selling dollars.

Ana Toyama, an analyst at the financial advising firm Aldesa, said that much of the volatility in the past few months can be attributed to the yearly process of companies changing money into dollars to pay year-end bonuses, known as aguinaldos, as well as taxes. This floods the local market with dollars, driving its value down, as was seen at the end of November. Toyama said her company did a study of the last two years and found that in the last two months of the year, the negotiated exchange rate increases strongly.

“What we´re seeing is not strange,” Toyama said.

Toyama predicts the dollar will remain high next year, as less tourism and foreign investment will reduce dollars in the local economy.

The financial weekly El Financiero predicts that the exchange rate will average about ¢553 per dollar this year. In 2007, it was ¢495.

While 2008 began with the exchange rate stayed at about ¢500 to a dollar, by July the value had soared to ¢550 as the Central Bank started selling dollars to defend the upper band. Not until November did the value of the dollar begin to fall in the local markets.

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