The Costa Rica Exchange Rate Mystery of 2010

Exchanging Ideas: Costa Rica Central Bank President Francisco de Paula Gutiérrez says he expects the colón-to-U.S. dollar exchange rate to “return to behave as it did before the (economic) crisis” with the economic recovery.

Source: Tico Times

The exchange rate is perhaps the country’s most important economic indicator. Its value is considered in nearly every transaction in a marketplace – from a sale or purchase, to investing, to importing and exporting. Therefore, when the exchange rate fluctuates in an irregular and unpredictable fashion, as during the first two months of the year, economic actors look for answers as to why.

Since early January, the colón-to-United States dollar exchange rate has varied dramatically, hitting a sell value of as high as ¢ 582.21 for $1 over the weekend of Jan. 9-11 to a sell value of as low as ¢ 550.39 as of March 10. Since Jan.1, the sell value of the colón has fallen eight colones, marking the first time in years that the colón has appreciated against the dollar during the first months of a year. Since the year 2000, the colón has devalued an average of ¢ 25 per year against the dollar.

So what is happening in 2010?

According to —————–analysts, the answer to the erratic colón can be found in a combination of abnormal economic factors as a consequence of the global economic crisis, along with calculated intervention by the Central Bank of Costa Rica (BCCR).