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Payment of Aguinaldos Impacts Exchange Rate

November 27, 2009

On November 12, the exchange rate hit its low for the year, as the “Buy” value for $1 fell to ?553.34 with a “Sell” Value to ?563.58.

The annual low meant the exchange rate has dropped by over ?30 per dollar since Sept. 17, when it reached a peak buy value of ?585.90 and sell value of ?595.37.

According to Ana Doyama of the financial consulting firm Aldesa, much of the dramatic fluctuation seen in the exchange rate is driven by the purchase of colones to pay taxes and aguinaldos (Christmas bonuses).

“There are two elements that alter the exchange rate from around Nov. 15 until the early part of December,” Doyama said.

“One is the payment of taxes. Companies pay taxes with colones, so they exchange dollars to acquire colones. The other element is the payment of aguinaldos. In the same manner that companies have to exchange dollars for colones to pay taxes, they have to do the same for aguinaldos.”

Fluctuations in the exchange rate are driven by the demand for a specific currency. As the demand for the colon rises, the  exchange rate dips, as colones have increased value. This seems to be growing trend for this time of year in Costa Rica, as the exchange rate value plummeted to its lowest value in 2008 at the beginning of December.

The dip in the exchange rate is welcomed at this time of year, as holiday purchases rise, though, according to Doyama, after taxes and aguinaldos have been paid, the exchange rate should gradually increase to the prior levels.

In the mean time, employees will receive aguinaldos and be able to spend the money while the exchange rate is low. Consider it an early gift from the Finance Ministry.

–Adam Williams

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