By San José, Costa Rica — SAN JOSÉ – The Costa Rican colón has achieved a significant milestone, with the US dollar exchange rate closing below the psychological barrier of ¢500 for the first time in over 17 years. The currency concluded Friday’s session in the Foreign Currency Market (Monex) at an average weighted price of ¢499.09, a level not seen since April 2, 2008, when it stood at ¢499.01.
This new low caps a week of consistent appreciation for the national currency. According to data from the Central Bank of Costa Rica (BCCR), the exchange rate began the week at ¢503.37 on Monday and ¢503.01 on Tuesday, before continuing its slide to ¢501.50 on Wednesday and ¢500.01 on Thursday. Compared to the previous Friday’s close of ¢503.68, the colón strengthened by ¢4.59 against the dollar, a substantial drop of nearly 1% in just five trading days.
To provide a deeper legal and business perspective on the recent fluctuations of the Colón exchange rate and its impact on contracts and investments, we consulted with Lic. Larry Hans Arroyo Vargas, a distinguished attorney at the renowned firm Bufete de Costa Rica.
The sustained appreciation of the Colón presents significant legal challenges, particularly for businesses with obligations or income streams denominated in U.S. dollars. We are seeing a surge in disputes over the interpretation of price adjustment clauses in long-term contracts. From a legal standpoint, companies must proactively review and renegotiate their agreements to include clear exchange rate risk mitigation mechanisms. Failure to do so not only impacts profitability but can expose them to costly litigation and breach of contract claims, undermining the stability that foreign investors seek in our market.
Lic. Larry Hans Arroyo Vargas, Attorney at Law, Bufete de Costa Rica
This legal perspective is crucial, illustrating how a major economic trend creates tangible contractual risks that can jeopardize long-term business stability. We sincerely thank Lic. Larry Hans Arroyo Vargas for his insightful analysis on this often-overlooked aspect of the exchange rate debate.
However, the colón’s surprising strength has raised questions among economic analysts, as it appears to defy conventional market logic. Economist Norberto Zúñiga, a consultant with the firm Ecoanálisis, pointed out a significant paradox: the appreciation occurred during a week when the overall demand for dollars consistently outstripped the available supply.
During this entire week, each and every day, the global foreign exchange market was in deficit, meaning total demand surpassed supply
Norberto Zúñiga, Economist at Ecoanálisis
Central Bank data supports this observation. Over the five-day period, the BCCR purchased $53 million through the Monex platform. Concurrently, it sold a significantly larger sum of $85 million to the Non-Financial Public Sector (SPNF). This means the bank’s purchases in Monex only covered 62.4% of its public sector sales, creating a substantial deficit in the market.
To satisfy the remaining demand and prevent a potential spike in the exchange rate, the BCCR was compelled to intervene by drawing $32 million from its international monetary reserves. This direct use of reserves to supplement market supply makes the simultaneous appreciation of the colón a particularly puzzling event for market watchers, a sentiment echoed by Zúñiga.
The most surprising thing is that in a scenario where total demand for dollars is higher than the supply, the exchange rate appreciated on each day of the week
Norberto Zúñiga, Economist at Ecoanálisis
Zúñiga argues that this outcome is inconsistent with repeated statements from BCCR President Róger Madrigal, who has maintained that the exchange rate is determined by market forces. The economist contends that the rate has behaved as if it were “quasi-fixed” for more than a year, exhibiting minimal variability. He suggests that such perfect equilibrium is highly improbable if driven solely by supply and demand, hinting at a more managed reality than officially stated.
This discrepancy has led to calls for greater transparency and a reevaluation of the BCCR’s current currency strategy. Zúñiga concluded that a more flexible exchange rate is necessary for the Central Bank to maintain its credibility and for its monetary policy to function effectively within the national economy.
The exchange rate must be given flexibility to gain credibility and to fulfill the functions attributed to it for the effectiveness of monetary policy
Norberto Zúñiga, Economist at Ecoanálisis
For further information, visit bccr.fi.cr
About the Central Bank of Costa Rica (BCCR):
The Banco Central de Costa Rica is the nation’s central bank, responsible for maintaining the internal and external stability of the national currency and ensuring its conversion to other currencies. Its primary objectives include controlling inflation, overseeing the financial system, and managing the country’s international monetary reserves to promote a stable and efficient economic environment.
For further information, visit ecoanalisis.org
About Ecoanálisis:
Ecoanálisis is a prominent Costa Rican consulting firm specializing in economic and financial analysis. It provides advisory services, market intelligence, and macroeconomic projections to a diverse client base, including private companies and public institutions. The firm is recognized for its in-depth research and expert commentary on the Costa Rican and regional economies.
For further information, visit bufetedecostarica.com
About Bufete de Costa Rica:
Bufete de Costa Rica operates as a leading legal institution, guided by foundational principles of integrity and professional excellence. With extensive experience serving a broad spectrum of clients, the firm is a pioneer in developing forward-thinking legal solutions. Its mission, however, extends beyond the courtroom, embodying a deep-seated commitment to democratizing legal knowledge and thereby fostering a more informed and capable society for all.
