Follow-up on the Exchange Rates and Banking

I expect my readers are might be a bit tired of all these posts about banking and the revaluation of the colon last week, but things are happening here that affect (especially) those expats living here.

But, I have also received a lot of email about this topic, so here are some things I am noticing in my travels around San Jose in the past few days. I think they may be important.

First, thanks to all those who wrote to me. If you are one of the many who made a nice “profit” last week, I am happy for you. If you took a little hit, I am sorry, but it is not too late. See below!

Exchange Rates on the Street

You need to be careful out there! Ask about the exchange rate if it is not posted.

I will tell my tale of a visit to ICE, the friendly local communications and electric utility monopoly. For one of my businesses, I buy international calling cards in bulk, usually $200-$400 worth at a crack.

As I have long since learned to never trust someone else’s calculations in financial matters, I was not surprised to find a discrepancy in the amount of my bill. As ICE, in their wisdom, does not accept dollars in payment, I had to pay in colones. This was no big deal, but what WAS a big deal is that they had not changed their computers last week to reflect the new exchange rate. This resulted in them handing me an invoice for 7,000 colones ($14.00) too much. Why? Because calling cards are in dollar units ($10 and $20), but I had to pay in colones! They used 517 colones instead of 498 colones for their calculation!

After a 45 minute wait and much telephone calling, they adjusted their rate of exchange to the rate given by Banco de Costa Rica (who share all ICE facilities). The bank knew and had the correct rate posted, but ICE did not!

Thus here is my first warning to those with ANY financial dealings; be careful that you are getting the correct exchange rate! In the other 15-20 places I visited this week, a surprising number knew nothing of the Central Bank’s changes! At least half were using 520 colones /dollar. Now if we are talking a dollar or so, no big deal. But $400 DOES make a difference. On the other hand, I suppose if you are receiving change from a purchase, you should keep quiet.

Colones vs Dollars

Exchange rates are moving in VERY odd directions… all down. This is odd! On Monday, many banks were at 499-505 buy-sell or even higher.

By mid week, this started dropping! Today, at Banco Nacional, the rate was 495 – 500!

As I have written, the Central Bank had to act and this recent drop was far from unexpected. What IS unexpected is this continued downward movement past the limit set by the Central Bank.

As you know, I feel that the correct exchange rate should be around the 460 colon/dollar mark. As I wrote last week, I thought another 4-7% reduction would occur in early 2008. Maybe though, the Central Bank is going to permit the local banks to continue adjusting downwards similar to how they used scheduled raises for so many years!

If this is true, then I would again suggest getting your money out of dollars and into colones. It may be best not to wait until January. I would also suggest you watch carefully to see if this downward trend continues. If it does, this marks certainly a move by the central bank that will affect you! You would be very foolish to continue to hold dollars if you see this downward trend!

One week is not enough to spot a trend, but clearly, another (almost) one percent was lost this week if you continued to hold money in a dollars account.

Euros

Many folks wrote about putting money in Euros. Euros are at an all time high against the dollar, but that trend will likely not continue. The central banks will only allow it to float so far. It also means little to nothing against a non internationally traded currency like the colon.

However, if you do not wish to take my advice regarding colones, then the euro may be ok. You might not lose anything anyway. This is far more difficult to predict though as NOTHING is valued in euros in Costa Rica, and the only reason banks even have an exchange rate for them is because of the tourists coming from Europe. Me? I am very happy with the Central Bank’s actions, and I believe the colon will continue to gain value over the next six to twelve months.

See related posts:

http://blog.therealcostarica.com/2007/08/12/the-colon-vs-the-dollar-watch-your-money/

http://blog.therealcostarica.com/2007/11/22/central-bank-revalues-the-colon/