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November 22nd, 2007
Back on August 12, 2007, I wrote a post entitled “The Colon Vs The Dollar – Watch your money!” In that post, I cautioned my readers that the weakening dollar could not long stand firm against the Costa Rica colon. I urged readers to move their funds from their dollar accounts (in Costa Rica banks) to colon accounts as I anticipated that the Central Bank had to act soon to bring the dollar down and increase the value of the colon.
Last night, they did just that. The colon has been revalued to about ¢497 and ¢498.39 to the dollar.
So what is the effect of this? Here are some examples:
First, it means that people with money in Costa Rica dollar accounts lost about 4% of the value of their accounts last night. This is true also of CD accounts. Sadly, those who are here seeking residency (pensionados and rentistas) have lost that percentage from any US dollar accounts they opened as deposits for their residency requirements.
Now let’s be clear on the word “lost”. You lost money only if you intend to use those dollars to buy goods and services in Costa Rica. If you were to withdraw those dollars and return to the US for example, you lost nothing. The US did not devalue the dollar. Costa Rica did!
A standard $60,000 rentista deposit is now worth only about $57,800 or so. I say “or so” as each bank in Costa Rica can still set the exchange rate as they see fit, so long as it stays within Central Bank guidelines. Either way, the money is gone.
If, however, you had your money in a colones account, your money now buys about 4% more than yesterday. If exchanging for dollars, you now need shell over only about 498 colones to get one dollar. If you have CD or deposit accounts, they buy 4% more when they are cashed in.
If you are working here in Costa Rica and you receive your salary or wages in colones, your paycheck just got bigger! Example: Your ¢300,000 paycheck now is worth about $602.00. Yesterday, it was worth about $580.00.
However, if you are paid in dollars, something that has been happening more and more frequently in the past couple of years, you just got hosed (unless your employer is really nice), as you just took a about a 4% pay cut.
I also feel that this will not be the end. The true exchange rate should be, in my opinion, now closer to about 460 colones to the dollar. I think the Central Bank simply could not make that large a change in one shot.
However, I think there is a good chance more adjustments are coming. I am expecting that these may be made in increments of 4-5% each until the proper exchange rate is reached.
I do not think that the next change will be in the very short term (2-3 months) BUT, if you read the August Post, I stated. “It is now my opinion that sometime within the time period of from 4 to 8 months from now…” Well clearly I missed that but came close. Almost 4 months! Therefore, when (and if) the next change comes, I think we should be looking at January-March, 2008.
For the almost fifty persons who wrote to me after the August post and told me you were making the switch, felicidades! For some of the others who thought I had lost my marbles (see some of the comments after the August post) , I hope you at least had your money in euros.
What to do now?
I believe we need to wait and watch a bit to see how the banks in Costa Rica value the dollar. I am 99% sure it will stabilize around ¢500 to the dollar (except at Scotia Bank of course!). If it continues to remain solid, then I believe the Central Bank will make at least one and perhaps two more adjustments.
Polite comments welcome as always!
Filed under Banking & Finance, Banking in Costa Rica, Cost of Living, Cost Of Living Costa Rica, Costa Rica, Life in Costa Rica, Living in Costa Rica, Working in Costa Rica | Comments (9)