Must be nice to be a government, able to muck around with the money when the mood strikes. Grab a little here, a little there… I would have said "Stealing 4%" but that might sound a little caustic. Slanderous, even.
For instance. Last Thursday – Thanksgiving Day, ironically enough – if I gave someone a dollar, I got 520 colones in return.
Late that same day, without notice, the BCCR (Banco Central de Costa Rica) quietly revalued the colón in an attempt to gloss over Costa Rica’s runaway inflation. When we woke up Friday morning, if we gave someone a dollar we only got 497 colones for it. Basically, a loss of 4% or 4¢ on a dollar. Nothing to really cry over when you are talking $1.
When you are talking $60,000 held in a CD to qualify for a residency visa… well, you want to sob and wail. To keen relentlessly. Overnight, while they slept, people who had their residency money in a Costa Rican bank (we don’t, thank you very much) turned over $2,400 to the BCCR. "BAM!" as Emeril would say. To be used for the good of the people, I’m sure. Still… couldn’t they have asked?
Since sobbing and wailing wouldn’t get it back, my friends bit the bullet, took the loss, put the money in a colón CD making 6.6%. Add that to the interest they made on the dollar CD and in a year they will come out slightly ahead. PLUS: when the Central Bank does this again, which they most assuredly will to the tune of another 4% or even 5%, my friends will make that on their colones.
I love rationalization. Makes everything tidy.
The people this hurts most are those who have dollars intending to spend them as colones. Like expats. Like current and future tourists. If you are coming to Costa Rica, everything you do, eat, buy, visit will cost you 4% more. Again, not a significant sum. Unless you are staying at Xandari Resort or Los Suenos… In real money, if you spend $3,000 in-country, your trip will only cost you $120 more. Today.
If you are coming more than three months from now and the colón happens to be re-valued between now and then, it might be worth flying here asap on one of those $16 round-trip Spirit flights and loading up on some colones…
This move also hurts my tica landlord. Since we pay rent in dollars, she will take a 4% hit every month when she goes to spend those dollars. Unless she holds onto them and spends them in the states where they are still worth… well, whatever they are worth.
On the plus side for us (there I go again), since we aren’t changing rent dollars into colones, we aren’t losing that 4%. That’s $40 a month we get to keep, enough to pay the cable and cel phone. There’s some comfort in that.
In the Big Picture, the colón is still pretty worthless. The fact that the dollar has been devalued against it is startling news. Historic, in fact. For nearly 100 years, the dollar has been more valuable than just about everything. When we first got here, we got 480 colones for a dollar. The ₡480 steadily increased to the ₡520, meaning I got more and more colones for every dollar I spent. Nice.
October 2006, the BCCR decided to "float" the colón. I have no idea what this really means, but, in practical terms, it meant the colon no longer lost value. Basically, it froze at around ₡517. While I stopped getting more and more colones, I wasn’t getting less.
Until now. To have a developing nation devalue the dollar against it’s coin of the realm is unprecedented. I take it as a downward indicator for the dollar, frankly. TicoGrande says the dollar will never collapse. That I’ve been reading "too much left-wing silliness." What a goose – I only read murder mysteries!!! But I bet him $5, er, ₡2,485 that it would.
Meanwhile, inflation in Costa Rica, estimated at 12%, is eating away at your pocketbook no matter what currency you carry. Eggs cost 70¢ a pound January ’06; today they cost $1. Still 35% less than in the states, despite the U.S. being all proud of its 3.5% inflation, so I guess I will try not to whine. Too much.
If you are now in colones, you are now looking forward to the next devaluation of the dollar against the colón. Rubbing your hands together like Scrooge… yessiree, take that 4%. Beats the heck out of just having it grabbed in the night.
the ‘what’ can happen depends totally on how you define it, for instance, if you think that the USD losing 50% of its value versus the EUR is collapsing……well if has already happened.
if you define collapsing as certain entities (like OPEC) considering using other currencies as the base for the industry……..well its already being considered
if you define collapsing as printing bunches and bunches of paper (called US dollars) to finance wars that have lasted already more than WWII……..
you get the idea 🙂 , so dont feel like you are reading fiction, its simply that noone has defined exactly what ‘collapse’ means, at any rate the pyramid schemes can only go on for so long
You sound exactly like Hal. Exactly. I’m all for being out of dollars. Into gold. Silver… Heck, colones. Too bad there’s no market for precious metals here. That would be fun, trading in gold.
Anyway: we think it’s already collapsed and that no one can admit it, too painful. China is sitting on a friggin’ mountain of dollars. Follow the money… is there any real money?
I will take that as a compliment 😉
since my and my wife’s wage are both in dollars and we spend a considerable amount of that in colones (Well food,gas and rent) we are hit quite hard with the new policies, my mom is our landlord so I am going to have to talk to her about our contract LOL but at least RACSA/AMNET/ICE DSL/jetbox should go down as they charge in dollars but use current exchange rates (for now at least)
I still prefer to be paid in USD than colones, back in 1980 the colon went from 8.6 colones/dollar to 60 and higher in a matter of weeks. Our economy is doing well but something as simple as rejecting the CAFTA would have sent the colon totally the other way (this whole economy thing is like dating a girl, its so much about the ’emotions’ ) LOL
Ironically one of the reasons the colon has appreciated is that there is a LOT of them in our economy (Tourism, transnationals paying us in dollars, real estate, and well well money laundering too)
I don’t think you have to worry about the Arabs moving away from the dollar. They’re buying too many U.S. assets. (I.E., Citicorp). You don’t simultaneously buy assets in a currency and then move to devalue that asset AFTER YOU’VE BOUGHT IT. Just doesn’t make financial sense.
Yes, that would make no sense at all, so can’t imagine the Arabs will devalue it. But the Iranians started trading oil for euros, that’s why we are pissed at them. As long as other countries keep accepting our dollars, they are good. But being at the receiving end of having my dollars devalued here is a little creepy!
What most in the US don’t realize is how low the dollar will likely continue to go in the next few years. Currency value is “controlled” by groups like the International Monetary Fund IMF and the World Bank. Value is determined and set based on things like economic performance, debt to equity, investment value and a host of other factors. The US economy is reacting to the largest boom (not a real one I might add) in property values in all of history. This “paper gain” was what fueled spending in the US as all of us felt “house rich”. Our spending behavior as a nation was abysmal at the same time, supporting two wars, buying everything we could get our hands on from China, snatching up huge SUV’s that goobled energy resources that we were importing, basically sending much of our money out of the country or wasting it on invisible enemies, while we all slapped ourselves on the back reminding us how great a nation we are. In the meantime, Costa Rica was experiencing real growth, solid income through tourism and an influx of foreign currency. Smart Americans are looking for ways to get their money out of dollars as the dollar continues to lose value in the world market. Why do you think the market is declining and the value of gold continues to rise. Folks like Warren Buffet understand these dynamics, they don’t tell us peons what to do but you can bet they didn’t lose 4% holding dollars. If it makes you feel any better Sally, the Canadian dollar has gained nearly 20% on the dollar in the past 14 months. If I had only gone to Canada and put all my savings into Canadian dollars. ;’)
$40 for cable and cel per month!!!!How very inexpensive.
$30 for cable, $8 for cel. $2 for two eggs over, toast, gallo pinto and coffee at my local soda…!
Hi Steve – nice to hear from you! You sound like Hal, too – exactly. I think most U.S. citizens are too busy trying to make gobs of money to make those payments and buy more stuff at Kmart to worry about what their kids are actually learning (or not learning) in school. To figure out what money really is and where it’s going. God help us! Love living in my insulated little country over here.
MORE LIKE GRABBING 15%
I thought I read somewhere that Costa Rica is suffering 10-12% annual inflation. Add the 4% devaluation of the dollar, and is sounds like your dollar is worth something like 15% less than a year ago. Yes? No?
I read about this speculated change and opened an account in Colones. The Colon may go as far as 470 or something like that, I read in 2 different articles. Check out the blog “my dos colones”. It saved me alot of money as I made a few thousand dollars. I spend Colones for everything here so it since the dollar is low why not? The key is that no longer “hopefuly” will Costa Rica have a 10 percent inflation rate. This year it has remained level.
I have a question for you…with residency since you and your family had to put $60,000 into an account, if you leave and go back to the states in the next 5 years what happens to the money? I cant imagine C.R. handing any portion back to you? Also did you have to open the account in Dollars, or did you have the choice to keep the account in dollars/colones, or both (2 accounts)? The reason I havent gone forward with residency is because for me I am really not sure that I want to stay. But like you, and the longer I am here, the harder and more expensive it is to go back and start all over. That makes me very sad. Time will tell, but there is surely no love affair with Costa Rica for me. At best I think one more year…
I don’t pretend to touch savvy when it comes to world economics, but reading this post and comments made me want to ask if you’ve read any Daniel Quinn yet? The trilogy, Ishmael, The Story of B and My Ishmael are good places to start. Actually, maybe suggesting Kunstler’s The Long Emergency is more apropos to the post. Hmmm, can’t be sure … it’s late, and I’ve got Canadian dollars to count … tee hee hee … .
Just curious, isn’t your $60k deposit in the U.S.?
Isn’t c10,000 around $20 instead of $5?
I truly don’t understand the colones vs. a dollar but I thought it was a good thing that the colones is less because you get more colones on the dollar.
I don’t keep much money in CR because I don’t understand their system and furthermore, don’t trust it.
Our residency deposit is here, we couldn’t get any of our banks, where we have banked for many years, to write The Letter that migración needs to verify you’ve done the deposit. So it’s here.
Yes – ack, I did the math the wrong way…
NO: you don’t get more colones for the dollar, you get less. You used to get 520 for a buck, now you only get 497. For ever dollar you spend here now – and if all your money is in the states, you are really spending all your money in dollars – you lose 4cents. For every thousand dollars you spend here, you lose $40.
The consensus is that this will most definitely happen again in the next 3-4 months. THEN you will lose 8cents for every dollar you spend here, $80 for every thousand.
You just have to decide if it’s worth it to you to lose that money or do you want to have an account here.
I’d like to have NO money in ANY bank… but I’m stuck with the residency deposit. For now… we are scheming, no workable idea so far, but still scheming!
Cindy, nice you braggin’ like that… I’ll have to be content with just losing a little! I just ordered Ishmael and a ton of other books for my mom to bring home from the states. Kunstler is on the list… see you!
Hi John, Yes, Costa Rica suffers around 12% inflation… so it’s actually worse. Still, cost of living here is much less than in the states. Now that our money is in colones, hopefully we will start to be winners in the game!
Hi Cynthia, the $60k is mine in my name. I can take it all out, I can do whatever I want with it. The only thing migración cares about is that I have it stored away and the bank verifies that I have it there. IF I take it out, the bank must notify migración that I have taken it out and, presumably, migración will hunt me down and take away my cedula. Costa Rica doesn’t get to hold the money for me… oh no no… they just get verification that the lump sum in held. The purpose is so they know I’m “solvent”, that I have at least $1,000/month to spend in Costa Rica. Also, we had to deposit $2500 with our residency lawyer to pay for a trip home if we are deported. We will get that back as well, when we either decide we no longer want to be residents or get permanent residency in three years.
You can keep you residency deposit anywhere in any bank or institution in the world as long as that institution writes a letter to migración (and there is a form) stating that you have the money there and that, if you remove it, that institution promises to notify migración of that fact. But none of our Key West banks would write the letter for us. Not surprising, but still annoying.
Thank you so much for the information. NOW I get it. After asking the same questions to three lawyers and also attending the ARCR seminar, you answered the questions that I needed answering. Everyone else kept telling me it must be in a C.R. bank, that you must keep the money there for 5 years and take out $1,000 a month only, on and on.
I have a funny story to share with you that I heard at the bank the other day, I laughed so hard that I stopped the tellers.
I ran in to a friend, Bob who was waiting with me to get our accounts changed because of new passport numbers(another story) he told me his had been stolen when his new Mitzubishi SUV was stolen last week. I asked him where he was when it was taken (we live in a small town and it is rare where we are) He told me he was having a session of Acupuncture at Dr.Pisa’s office. I said “but Dr. Piza is a Veterinatian, my Vet, and a very good one but acupuncture? He said yes, the very same Doctor, he had such good results with the treatment on his animals that he decided to treat people. Bob said ” Its a little un-nerving with all the dogs around when your lying there, but he felt that it was doing him some good!
He added then ” He also does Marriage Counseling! How funny is that….Only in Costa Rica.
p.s. Did you know that when you get your passport renewed, or replaced that the new passport has a different number? I just figured that it was the same number that stayed with you like a soc.sec number.
You have to go to the bank and get everything changed, auto withdraws, new card, new information on the account, for me 2 trips and 3 hours of work. What a headache!
FYI – my abogado gave me the “Thompson” directory of all the banks in the U.S. that are acceptable to CR. I just picked one in my town and went with them. They had no problem writing the letter – Bank of Naples. They also suggested I put some of it in a CD, which I did. So far, everything has gone smoothly.
Very nice! I had no idea there was a Thompson directory… wish I had known! ARCR: where are you???
Cynthia – loved the story, SO Costa Rica! I had heard that you get a new number, but nobody asks for mine now… when the time comes, someone is going to have to make a REALLY strong case for me go to the trouble to get everything changed…
When the time comes for your new number, this will be your “really strong case” you will be in line at the teller to say make a payment, or withdraw a few dollars and the teller will just walk away from you to go talk to management, maybe return in 10 minutes or maybe leave you just hanging for much longer, then they will say NO. You can not have ANY access to your account WHATSOEVER (can you believe that!) until you go to the customer service part of the bank and start the whole thing over again. New account info, turn over your card, new passcode, all direct payments re-written, signed in triplcate, you know the drill. EVEN THEN, you dont have any access to your account and cant do the business that you originally came to the bank to do…you must wait until your new acount is activated and your card will be re-issued in 1-2 days at the bank of your choice (how convenient)
This has now happened to me twice. I bank with BCR unfortunately, but all choices are pretty bad I am afraid.
I had my card taken and used in cash machines by a part time worker that was working in my house. I found out about it, and found the bank/machine he used, it was out of town and near his fathers house where he lived, the bank had pictures of him recorded as he was taking out the money…I filled 2 complaints, talked to bank managers and still they did absolutely nothing. They told me he would have spent the money and I would never see it back. For me that wasnt the point, to get the money back but rather stop the thief from a life of crime possibly, I even contacted his employer, nothing. Its the whole poor tico, rico gringo thing.
Hi Cynthia, this is all hypothetical, of course, since my passport won’t expire for quite some time now… but my plan has always been to avoid going to the tellers at all. Even the few times I’ve gone, no one asks for my passport or even the copy. I give them my driver’s license… and soon will be able to give them my cedula #. If I have to go through the whole thing again, I’ll live… but I will avoid it as long as possible.
Sorry to hear about your card theft and that nothing was done, even with all the proof. Petty theft is bad here and the fact no one does anything about it is very discouraging. It makes me view my immediate world in a more paranoid light. That’s no fun.
Did not realize that you lost that much… sorry. (Forget the $5 you will owe me 🙂
However, as I KNOW you read my blog, did you just not believe me when I wrote about this upcoming devaluation back in August (http://blog.therealcostarica.com/2007/08/12/the-colon-vs-the-dollar-watch-your-money/)
or did you miss it? I wrote that mostly with other expats in mind so as to avoid this problem. This is NOT an “I told you so”, I am just curious as I know you are a reader.
BTW, IMHO, the central bank is NOT done yet. Expect more. As I wrote in August, the value should be around 460 and I do believe that more revaluations are coming soon… maybe not all at once, but coming nonetheless. Get you $$$ into colones if at all possible.
We believed you – it made sense. Just procrastination at work… all colones now, thank you very much!!!