The Changing Dollar Exchange is Stirring up Costa Rica finance Once Again.

The dollar keeps going up and it is not looking as if this phenomenon is going to stop too soon. The banks had to adjust their selling and buying rates again. The selling price (the price you get when exchanging dollars for colones) went from 528.08 colones to 533.65 colones yesterday, July 15, accounting for a 5.57 colones gain. The buying price (when you turn in colones for dollars) went from 521.20 Colones to 526.73.

The increase is due to a higher demand of the U.S. currency, which could have been caused by the increase of imports, the slowing down of the exports due to the economic crisis and less growth in the United States, the transfer of investments from the colon to the dollar and also, the expectations of a higher devaluation.

While the Central Bank, the regulating authority over other Costa Rica banks, called this fluctuation normal and said they do not intend to intervene, the general mood in Costa Rica is not improving, and residents are beginning to bite their nails. This rise in the dollar means for them that they will need to pay more for goods bought in dollars, or that they will have to pay more towards interest on loans in U.S. currency.

The economists Rigoberto Stewart and Alberto Franco recommend that Ticos remain calm and that there is no need to rush to the banks just yet. For those who have debts in dollars, however, the situation can get a little tricky, as it means that they have to get more and more Colones out in order to pay those debts to the bank.

“It is important for the individual as much as for the companies to understand that when they take on a loan in a foreign currency such as the dollar, they take on what is known as a risk when exchanging it, which is basically based on the rise in the monthly rates that can occur in the case of a rise in the rate of money exchange,” Franco said. For example, if a person has a debt with a monthly interest payment of $500, there will be a rise of 20 colones in the exchange rate, and that is an extra 10,000 colones ($20) to pay.

“In order to avoid these risks, it is generally recommended to save in dollars when salaries are in colones, however it is important to analyze each case individually,” the economist added. With the interests in colones going up, it is not recommended to rush to the bank to buy the debt, ending up with a loan in colones, thus making matters even worse.

On the other hand, the rise of the buying and selling price of the dollar benefits highly those who have their savings in the U.S. currency. “In this case, for those who wish to save their money, it is better to do it in dollars while keeping an eye on the market. For those who can do it in Euros, it is even better!” Franco said.

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Filed under: Business on July 15th, 2008