After more than two years of virtual immobility, the dollar started a rise which has been linked to changes in external variables, accompanied by a concentration of credit in the US currency.
Accompanying this depreciation of the local currency is an increase in the benchmark rate for dollars, a new indicator that the Central Bank started publishing a few weeks ago.
An editorial on Nación.com notes "...The new benchmark rate in foreign currency calculated weekly by the Central Bank has gone up.There has also been a slight rise in quotes of the colón against the dollar in the foreign exchange market.Could there be a relationship between the two movements? "
It is reported that the reason for the rate hike is"... in the opinion of those bankers who were surveyed ... the rise is due to a shortage , or perhaps less abundance, of dollars circulating in our environment. Closely linked to the lower liquidity is the high concentration of credit granted in that currency. "
The Salvadoran economist Manuel Hinds discussed in Costa Rica the pros and cons of dollarization, using the example of El Salvador and Panama.
The Elsalvador.com reported that "many government economists advocate keeping their local currency because they believe that inflation will remain low, but Hinds explained that the opposite happens. In the region, El Salvador, and Panama, which are dollarized, have the lowest inflation rates while countries like Argentina and Venezuela have an inflation rate of more than two digits (25 and 10% respectively) while last year, inflation in El Salvador was only 0.8%. "
When the monetary cauldron reaches boiling point, it is time to recognize that the best solution is to take the fuel away from the fire.
The solutions being employed as a remedy for the distortions caused by the flood of speculative capital in the Costa Rican economy, each have a common factor: they fix one end of the problem and exacerbate another.
The latest announcements in Costa Rica about greater exchange rate flexibility to appreciate the colon are worrying exporters.
An article on Crhoy.com reported that "Late last year, the president of Costa Rica’s Central Bank (BCCR) Rodrigo Bolaños announced that the monetary authority will continue the transition announced in 2006 seeking to lead the country towards greater exchange rate flexibility consistent with the full adoption of inflation targeting."
While interest rates for local currency remains at current levels, dollars will continue to enter the Costa Rican economy, which will prevent its devaluation.
Analysts believe that in Costa Rica the exchange rate will remain near 500 colones per dollar at least until 2015. The establishment of this date is subject to announcements from the Federal Reserve of the United States, which can predict that in that country expansionary monetary policies will remain in place until that year.
Several experts have mentioned factors that justify this forecast, including foreign currency purchases by the government.
It has been mentioned that the market is currently very "colonized" by investors enjoying higher returns on the local currency, the Colon, which has been paying out better rates than U.S. dollars.
But that trend, which has lasted for two years, is apparently over, and a cycle of dollar shortage is starting, leading to depreciation of the local currency. "In numbers, financial wealth in colones in 2011 reached annual growth rates close to 15%, whereas the amount in foreign currency increased between 0.7% and 2.1%. With a shortage of dollars it is assumed that the price will increase, an expectation that is reinforced because an increase in demand for foreign currency is expected, due to financial institutions granting more loans in that currency, so they need more to meet the demand.
Represents the Company RTS INTERNATIONAL, Inc. of Kansas Cyty, TX, USA, for the territory of Guatemala and Central America. RTS finance exports through Factoring system.
Operates in Guatemala
Phone: (502) 2369 5408 - (502) 5709 2986
Caribbean-Central American Action (CCAA) is a private, independent organization that promotes private sector-led economic development in the Caribbean Basin and throughout the Hemisphere.
Operates in Panama, Nicaragua, Honduras, Guatemala, El Salvador, Costa Rica and Caribbean Community
Phone: (202) 331-9467