Costa Rica Blog

Colon's 11% increase spurs Central Bank to Buy Foreign Currency

Posted by Steve Linder on Fri, Sep, 03, 2010

dollar shrinking

With the colon's increase in value this year topping 11%, it was the second highest appreciating currency worldwide.  In a reaction by the central bank to control the astonomical increase in the value, the bank has announced plans to purchase up to $50 million dollars per month in foreign currency to curb the rise in value of the colon.  The rapid rise in value of the colon will make both tourism and exports more expensive.  The central bank has traditionally allowed the colon to float in a range between 500 and 640 colon to the dollar but this week the colon approached the upper ranges in value, at 504 colons to the dollar. 

By purchasing foreign currencies, the central bank hopes to decrease the value of the colon.  The higher value of the colon makes real estate and exports more costly to international investors.  This is a good thing for the many North Americans who have already purchased property there, as the value of thier property increases.  It does make real estate more expensive for new buyers unless the property is priced in dollars, not colon.  Fortunately our prices at Pacific Lots are priced in dollars but as the dollar continues to lose money worldwide, there is pressure to change our pricing system to colons.  For those who have purchased property using a self directed IRA, the gain they realize over time reflects the increase in the value of the colon as well as the increase in value of the property.  As the dollar continues to lose value, more Costa Rican real estate, home sites and lots will be priced in colons. 

China's interest in Costa Rica has much to do with the value of the colon.  China has been spending dollars in Costa Rica and in effect converting dollars to assets valued in colons.  A savings account in colons this past year would have gained over 11% against the dollar, just from exchange rate flucuations.  The only currency that outperformed the colon this past year was the Columbian peso.  Again the stability of the Costa Rican economy is apparent in the increasing value of it's currency. 

As tax breaks put into law by George Bush expire at the end of this year, we can expect to see further losses in value of the dollar and a continued weakening of the value of both assets and savings of baby boomers in the US.  Smart money managers are moving their assets out of the dollar and into other currencies.  This has added additional pressure on the colon as currency traders seek to buy currencies that are appreciating.  The colon and other assets (real estate and homes) in Costa Rica continue to appreciate from this pressure.  The market for property in Costa Rica is an international market and buyers continue to come from around the world. 

Tags: Real Estate Costa Rica, Costa Rica real estate, Real Estate, Costa Rica Colon, property purchase in Costa rica, property, home sites