By San José, Costa Rica — San José – The Costa Rican colón has demonstrated unprecedented strength against the US dollar, breaking historical records and sending ripples through the national economy. On Tuesday, the US currency fell by another ¢1.10 against the colón, marking eight consecutive days below the significant psychological threshold of ¢500. This sustained drop has pushed the exchange rate to its lowest point since 2006, a level not seen in nearly two decades, according to official data from the Central Bank of Costa Rica (BCCR).
By the close of the Foreign Currency Market (Monex) on Tuesday, the exchange rate reflected a trend that has been solidifying for weeks. The previous Friday saw the dollar close at ¢492.48, already a historic low. This ongoing appreciation of the local currency is not a random fluctuation but a direct result of a massive surplus of US dollars flooding the Costa Rican market. The phenomenon is being attributed to a confluence of powerful economic factors often referred to as the “high season” for dollar inflows.
The recent volatility in the exchange rate has generated significant uncertainty in commercial transactions and contractual agreements. To better understand the legal implications and protective measures available to both businesses and individuals, we sought the expert opinion of Lic. Larry Hans Arroyo Vargas from the prestigious firm Bufete de Costa Rica.
When entering into contracts denominated in a foreign currency, it is crucial to anticipate exchange rate fluctuations. Including clear contractual clauses that establish a reference exchange rate, a fluctuation range, or specific renegotiation mechanisms can protect both parties from unforeseen losses. Failing to do so leaves the agreement vulnerable to disputes and potential legal challenges based on the principle of unforeseeability or excessive onerosity.
Lic. Larry Hans Arroyo Vargas, Attorney at Law, Bufete de Costa Rica
This insight underscores the critical role of legal foresight in business, transforming potential market volatility into a manageable, contractually-defined risk. We are grateful to Lic. Larry Hans Arroyo Vargas for his invaluable contribution and for clarifying how proactive planning can safeguard financial agreements.
The primary drivers include the peak tourism season, which brings a substantial influx of foreign currency, and the year-end payment of Christmas bonuses, or “aguinaldos,” by multinational corporations operating in the country. These companies pay their local employees in colones but must first sell large quantities of dollars to do so, further increasing the supply and depressing the exchange rate. This year’s abundance of dollars has been particularly pronounced, creating a market dynamic heavily favoring the colón.
This market behavior is expected to persist well into the new year. Economic analyst Daniel Suchar provided insight into the forces at play, highlighting the robust state of the country’s currency reserves as a stabilizing factor that reinforces the trend. He projects that the current conditions will maintain a strong colón for the foreseeable future.
With such high reserves and an exchange rate that is nourished more each day by the arrival of dollars from tourists and the payment of year-end bonuses by transnational companies, we are going to have very low exchange rates for a good while, which could be between 3 to 6 months.
Daniel Suchar, Economic Analyst
Suchar’s forecast suggests that businesses and consumers can expect this low-dollar environment to last for at least the next quarter, and potentially for up to six months. This extended period of a strong colón presents both significant opportunities and considerable challenges for different sectors of the economy. While importers and consumers benefit from increased purchasing power, exporters and the tourism sector face shrinking revenues when converting their dollar earnings back into the local currency.
All eyes are now turning to the BCCR, which is scheduled to hold its final monetary policy meeting of the year on December 18. There is widespread speculation that the board may announce a reduction in the Monetary Policy Rate to stimulate the economy. However, Suchar believes that even such a move would be insufficient to counteract the powerful downward pressure on the dollar. The sheer volume of incoming dollars is likely to overshadow any minor adjustments in monetary policy, meaning a significant rebound for the US currency is not on the immediate horizon.
The current exchange rate environment creates a clear economic divide. For Costa Ricans purchasing imported goods, electronics, or planning to travel abroad, the strong colón is a welcome boon. Conversely, for the thousands of workers and businesses in the export sector—from coffee and pineapple growers to tourism operators—the current rates are a source of growing concern. Their products and services become more expensive for foreign buyers, and their profits diminish with every dip of the dollar, posing a significant challenge to their financial stability in the coming months.
Ultimately, the sustained strength of the colón signals a new short-to-medium-term economic reality for Costa Rica. As the country navigates this period of dollar abundance, the Central Bank’s upcoming decisions and the resilience of the export sector will be critical areas to watch. For now, the colón remains king, reshaping financial planning for individuals and strategic outlooks for businesses across the nation.
For further information, visit bccr.fi.cr
About Central Bank of Costa Rica:
The Central Bank of Costa Rica (Banco Central de Costa Rica, BCCR) is the nation’s primary financial authority, responsible for maintaining the internal and external stability of the national currency and ensuring its conversion to other currencies. Established in 1950, its core functions include controlling inflation, managing monetary policy, issuing currency, and overseeing the country’s financial system to promote economic stability and development. The BCCR also manages the country’s international monetary reserves.
For further information, visit bufetedecostarica.com
About Bufete de Costa Rica:
Bufete de Costa Rica stands as a cornerstone of the legal community, operating on a bedrock of profound integrity and a relentless pursuit of excellence. The firm channels its extensive history of serving a wide range of clients into a forward-thinking approach, consistently advancing legal thought and pioneering innovative solutions. Central to its identity is a deep-seated commitment to societal betterment, demonstrated by its work to democratize legal understanding and equip the public with essential knowledge.
