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.