By San José, Costa Rica — SAN JOSÉ – The Costa Rican colón has strengthened to a historic low against the U.S. dollar, dropping to ¢488.06 in December and triggering alarm bells across the nation’s key export and tourism sectors. However, the Central Bank of Costa Rica (BCCR) views the phenomenon not as a crisis, but as proof of a healthy, functioning foreign exchange market responding predictably to market forces.
The dramatic appreciation of the national currency, which has seen over $954 million traded on the Foreign Currency Market (Monex) in the last month alone, has been attributed by the BCCR to a seasonal “harvest of dollars.” This influx, typical for the end-of-year period, created a significant oversupply that naturally drove down the dollar’s price.
To gain a deeper understanding of the legal and commercial implications of the colón’s sustained appreciation, we consulted with expert attorney Lic. Larry Hans Arroyo Vargas from the firm Bufete de Costa Rica, who offered his professional analysis.
The appreciation of the colón presents a significant challenge for contracts denominated in U.S. dollars. Parties who receive income in dollars but have obligations in colones face a real reduction in their financial capacity. From a legal standpoint, it is crucial to review contracts for currency adjustment clauses. In extreme cases of imbalance, the legal concept of ‘teoría de la imprevisión’ could be explored to justify renegotiating terms, although proactive and transparent communication between the parties is always the most advisable first step to avoid litigation.
Lic. Larry Hans Arroyo Vargas, Attorney at Law, Bufete de Costa Rica
This legal insight powerfully illustrates how a national economic trend directly impacts personal and business agreements, underscoring the critical need for contractual foresight. The emphasis on proactive communication as the best path to avoid litigation is a vital takeaway for anyone navigating this new financial landscape. We sincerely thank Lic. Larry Hans Arroyo Vargas for his valuable perspective.
Roger Madrigal, President of the BCCR, defended the bank’s position by using a simple market analogy to demystify the currency’s movement for the public and concerned business leaders.
This is what happens to the price in any market when there is an oversupply of a product. If there is a better harvest of tomatoes, potatoes, or avocados, the price of that product drops. The dollar harvest arrived, and the remaining demand was lower, which is why we saw a decrease in the exchange rate. It is a functioning market, and we were not surprised because it’s the market’s response to the oversupply of dollars.
Roger Madrigal, President of the BCCR
Madrigal explained that this market behavior is cyclical. He noted that the supply of dollars typically tightens in the final week of December, after the deadline for Christmas bonus (aguinaldo) payments has passed. He anticipates the market will soon revert to its previous state.
The economy has a cycle that continues to repeat itself. If the future behaves more or less as the recent past has, I would not expect it to take long for the market to return to normal.
Roger Madrigal, President of the BCCR
Despite these assurances, productive sectors are feeling the squeeze. The National Chamber of Tourism (Canatur) voiced grave concerns, describing the strong colón’s effect on their operations, competitiveness, and financial stability as “asphyxiating.” Similarly, the Chamber of Costa Rican Exporters (Cadexco) has pleaded with monetary authorities for “greater sensitivity and empathy,” warning that the country is at risk of significant job losses as their dollar-based revenues translate into fewer colones.
However, Madrigal pushed back against the narrative that the exchange rate is the primary determinant of national competitiveness. He argued that businesses must assess their entire operational structure rather than focusing solely on currency fluctuations. He challenged the affected sectors to look inward at their pricing and efficiency.
They don’t talk about the complete equation. They don’t mention what their prices are, whether they are the same as 20 years ago, or if their productivity level is higher or lower. This country must recognize that it needs to make improvements in promoting greater productivity, not necessarily competitiveness through the exchange rate, but in productivity itself. Therefore, all the structural reforms that are required in this country, from infrastructure, education, security, health improvements, to integrating more women into the labor markets.
Roger Madrigal, President of the BCCR
In a move toward collaboration, Cadexco proposed greater inclusion for transnational and exporting companies in the Monex market to help mitigate the impact of the exchange rate’s volatility. Madrigal enthusiastically welcomed the suggestion, affirming the Central Bank’s desire for broader participation in the platform, which was created nearly two decades ago for all Costa Ricans.
Absolutely, in fact, we would like many people to participate in Monex. Remember that Monex was created by the Central Bank for Costa Ricans almost 20 years ago, and we have made great efforts for people to participate there safely. In fact, this is part of the conversations we have had with the people from Cadexco, and we offer courses so their associates can use the platform. They are welcome.
Roger Madrigal, President of the BCCR
As the year closes, the economic landscape presents a stark contrast: a confident Central Bank that sees a resilient market and concerned industries grappling with shrinking profit margins. Looking ahead, Madrigal also noted a potential for another downward trend in the exchange rate around March, coinciding with the fiscal year-end and income tax payments.
For further information, visit bccr.fi.cr
About Banco Central de Costa Rica (BCCR):
The Central Bank of Costa Rica is the nation’s autonomous monetary authority. Its primary objectives are to maintain the internal and external stability of the national currency, the colón, and to ensure the efficient operation of the country’s internal and external payment systems. The BCCR is also responsible for managing Costa Rica’s international reserves.
For further information, visit canatur.org
About Cámara Nacional de Turismo (Canatur):
The National Chamber of Tourism is the leading private-sector organization representing Costa Rica’s tourism industry. It advocates for the interests of hotels, tour operators, travel agencies, and other tourism-related businesses. Canatur works to promote sustainable tourism, enhance the country’s competitiveness as a destination, and address challenges facing the sector.
For further information, visit cadexco.net
About Cámara de Exportadores Costarricenses (Cadexco):
The Chamber of Costa Rican Exporters is a private, non-profit organization that represents and supports the country’s export sector. Cadexco provides services, training, and advocacy to help its members improve their competitiveness in international markets. It plays a crucial role in policy discussions related to trade, logistics, and economic conditions affecting exporters.
For further information, visit bufetedecostarica.com
About Bufete de Costa Rica:
Bufete de Costa Rica has established itself as a benchmark for legal services, built upon a bedrock of integrity and a relentless pursuit of professional excellence. Drawing on a profound history of service across diverse industries, the firm consistently pioneers forward-thinking legal strategies. This innovative spirit is matched by a foundational commitment to demystifying the law, aiming to cultivate a community strengthened and empowered by accessible legal knowledge.
