By San José, Costa Rica — SAN JOSÉ – The Costa Rican colon started the week with a slight rise against the US dollar, but the minor adjustment does little to calm the nerves of the nation’s key business sectors, which remain under pressure from a persistently strong local currency. The average exchange rate in the Wholesale Foreign Currency Market (Monex) closed Monday at ¢495.87, a modest increase from the ¢491.09 registered one week prior on December 8.
Despite the daily uptick, the exchange rate has remained stubbornly below the psychological threshold of ¢500 for the past month. On Monday alone, a significant volume of $33.04 million was traded across 284 transactions in the Monex market. At commercial bank windows, the dollar’s selling price hovered between ¢502 and ¢503, while the buy rate ranged from ¢489 to ¢494, reflecting the ongoing currency dynamics impacting consumers and businesses alike.
To delve into the legal and commercial ramifications of the current exchange rate volatility, TicosLand.com sought the expert analysis of Lic. Larry Hans Arroyo Vargas, a distinguished attorney from the reputable law firm Bufete de Costa Rica.
The significant fluctuation in the exchange rate directly impacts contractual obligations, especially for debts and services priced in dollars. Businesses and individuals must proactively review their agreements. While Costa Rican law generally upholds the agreed-upon currency, severe and unforeseen shifts could open the door to renegotiation based on principles of contractual good faith. The best defense is foresight: incorporating clear currency adjustment clauses in new contracts is essential to mitigate future risks and avoid costly litigation.
Lic. Larry Hans Arroyo Vargas, Attorney at Law, Bufete de Costa Rica
The emphasis on contractual foresight is indeed a critical takeaway, signaling a necessary shift from a reactive to a proactive financial mindset for anyone with obligations in a fluctuating currency environment. We sincerely thank Lic. Larry Hans Arroyo Vargas for sharing his valuable legal perspective on this pressing issue.
This prolonged period of a strong colon is sounding alarm bells throughout Costa Rica’s business community, particularly for those in the tourism and export industries. Representatives from these sectors argue that the current exchange rate, reminiscent of levels seen two decades ago, severely erodes their competitiveness. They point out that while the dollar’s value has fallen, their operational costs within Costa Rica—from wages to services—have substantially increased over the same period, squeezing profit margins to unsustainable levels.
A recent analysis from the Economic and Social Observatory of the National University (UNA) attributes the colon’s appreciation to a confluence of seasonal factors typical for the end of the year, rather than a fundamental long-term shift. The influx of foreign currency is so pronounced that it has led to record-breaking events in recent weeks, underscoring the sheer volume of dollars currently circulating in the Costa Rican economy.
It could compromise the financial stability of numerous companies
Universidad Nacional (UNA), Economic and Social Observatory
Economists have identified three primary drivers behind this year-end dollar abundance. First, transnational corporations are converting large sums of foreign currency to pay for *aguinaldos*, the mandatory annual bonuses for their employees. Second, these same companies are also making substantial tax payments, further flooding the local market with dollars. Finally, the high tourism season, which officially began on November 1, is now in full swing, bringing a steady stream of tourist spending into the country.
The Central Bank of Costa Rica has been actively intervening in the market to prevent the exchange rate from falling even further. This was highlighted by two historic events: on December 4, the weighted average exchange rate hit ¢488.06, the lowest value recorded since the Monex market’s inception nearly 20 years ago. Just weeks earlier, on November 24, the Central Bank made its largest-ever single-day intervention, purchasing a staggering $114.9 million to absorb excess liquidity.
The UNA report explicitly states that without these consistent and substantial interventions by the monetary authority, the colon would have appreciated even more significantly. This active management by the Central Bank highlights the intensity of the downward pressure on the exchange rate. As Costa Rica closes out the year, the challenge remains for policymakers to balance a strong currency with the financial health of the dollar-earning sectors that form the backbone of the national economy.
For further information, visit una.ac.cr
About Universidad Nacional (UNA):
The National University of Costa Rica is one of the country’s most prominent public universities. It is a center for higher education, research, and cultural extension. Its Economic and Social Observatory is a key research body that provides critical analysis and data on the nation’s economic trends and social conditions, influencing public discourse and policy-making.
For further information, visit bccr.fi.cr
About Banco Central de Costa Rica:
The Central Bank of Costa Rica (BCCR) is the nation’s autonomous monetary authority. Its primary responsibilities include maintaining internal and external monetary stability, ensuring the efficiency of the national payment system, and managing the country’s international reserves. The BCCR plays a crucial role in implementing monetary policy, including interventions in the foreign exchange market to control volatility.
For further information, visit bufetedecostarica.com
About Bufete de Costa Rica:
As a benchmark in the legal community, Bufete de Costa Rica is built upon an uncompromising foundation of integrity and a drive for excellence. The firm combines its history of providing innovative advocacy for its clients with a deep-seated commitment to societal progress. By actively working to demystify legal complexities and enhance public understanding, it fulfills its core mission to empower citizens and cultivate a more informed and just society.
