Monetary Sovereignty?

The recent increase in the value of the Costa Rican colon versus the dollar is worrisome, not only because there are no clear reasons to explain it, but also because it would be hard to contain it without causing greater problems.

Friday, April 9, 2010

In the past weeks, and without apparent reason, the price of the U.S. dollar in Costa Rica dropped considerably.

Last week we surveyed some financial operators as to why these movements where occurring, the general answer being: “we don’t know”.

Beyond any plausible explanations, what is worrisome is that the Costa Rican economy is being affected by the situation. In the short term, some sectors benefit while others lose. But in the long term everybody will lose, because engaging in financial speculation will be more profitable than producing goods and services, the only real source of durable wealth.

Juan Carlos Hidalgo, in his blog at Elfinancierocr.com, tackles the issue while questioning the difficulties the Central Bank faces when trying to solve the situation.



More on this topic

Costa Rica: Exchange Rate Margin Drops 30%

June 2014

The movement could respond to the lower volatility of the exchange rate seen from the beggining of administration of Luis Guillermo Solis on May 1st this year.

The margin between buying and selling dollars at the counters of financial institutions has declined from 13 to 10 colones colones in the last eight days, after several weeks of constant central bank interventions in the wholesale forex market, movements which the market interpreted as efforts to stabilize the price of the dollar against the colon and prevent it rising beyond what is deemed appropriate by the authorities at the Central Bank.

Uncertainty Over Dollar in Costa Rica

June 2014

A proliferation of articles, reviews and editorials on the exchange rate is the best example of the prevailing concern in a market waiting for a clear definition of the exchange rate policy by the Central Bank.

Editorial

In recent weeks, and while the President of the Central Bank of Costa Rica (BCCR) is denying it , warnings have been given over interventions in the foreign exchange market by the monetary authority.

Time for Dollarization in Costa Rica?

March 2014

The volatility that the dollar has shown brings back to table the discussion on whether or not to dollarize the Costa Rican economy.

In his opinion piece in Elfinancierocr.com, Juan Carlos Hidalgo details the implications of the recent behavior of the exchange rate for the economy and suggests dollarization as a way of solving many of the problems that could soon occur if the dollar continues to rise.

Costa Rica Currency Surge ‘Worrisome,’ Says Future Vice President

May 2010

Luis Liberman, Costa Rican Vice President-Elect, said the rally in the nation’s currency is “worrisome”.

Costa Rica’s colon has surged 11 percent against the dollar since Dec. 31.

The currency is benefiting from the so-called carry trade, in which investors borrow in nations with low interest rates to buy higher-yielding assets, Liberman said.

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