ML Party lawmakers renew calls to dollarize Costa Rican economy

July 14th, 2014 (InsideCostaRica.com) Libertarian Movement Party (ML) lawmakers of the Legislative Assembly are renewing calls to ditch the country’s national currency and dollarize Costa Rica’s economy.

 

ML Party lawmakers, who have presented such bills in previous administrations, say that replacing the country’s currency with the U.S. dollar would eliminate the drawbacks of a fluctuating exchange rate.

 

Those opposed to the measure say that dollarizing the economy would weaken the country’s competitiveness and eliminate an important tool of monetary policy.

 

Deputy lawmaker Otto Guevara, one of the supporters of the measure, said he supports dollarization due to the “secret” nature of the Central Bank’s interventions in the foreign exchange market.

 

“In Costa Rica there are no clear rules that allow citizens to know, in advance, how the Central Bank will intervene under different circumstances, and, therefore, interventions and non-interventions [in the foreign exchange market] have the ability to thwart individual efforts,” Guevara said.

 

Guevara said the current system makes the Central Bank a law unto itself, providing a “blank check” to the seven members of the Board of the Central Bank, to intervene in the currency market “without following any rules set in advance or being forced to be formally accountable to anyone for their actions or ommissions.”

 

“We understand that this is a controversial issue but at this time it is a must,” Guevara added.

 

Some analysts are also supporting dollarization, pointing to inflation this year that is likely to be well above the government’s target.

 

Economist Luis Loria also called for dollarization last year, saying that if dollarization were to occur, people would have better access to loans in dollars, whose interest rates are almost half of those in colones.

 

Not everyone believes dollarization to be a good idea.  Lawmaker and economist, Otton Solis is warning against support for the measure, saying that an important tool of monetary policy would be lost and the country would be forced to pay interest on dollars printed by the United States.

 

Economist Francisco Sancho is also opposed to such a measure.  “[Through dollarization], an instrument to promote exports and imports is lost.  We should analyze the experiences of other countries [who chose to dollarize], but in general, it would not be a good idea right now,” Sancho said.

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    • disgusted

      Every Mortgage, Cable TV, Internet… Oil, gasoline, Diesel, Import duties, Airport exit tax, Bus fare, I think everything here is tied to the Dollar already. This may not be what the CEO”S of the national bank want here controlling evaluation making them millions. As a North American , it makes no difference in my world.

    • costarick

      I agree that CR should have an officially U.S. dollarized economy. As “digusted” has noted, the CR economy is tied to the U.S. Dollar in many aspects already. Panama has had a dollarized economy for years and it seems to work well for them, getting rid of the uncertainty that comes with fluctuating exchange rates.

    • Michael Clarkson

      Seems like a good idea get rid of the unstable Colon.

    • NorthendFool

      Now is the time once again, the C is now 5.48 up and down again and again and someone says its not a good time? All these years wasted. Do it now and maybe someday you can come back to the C

    • http://adullroar.blogspot.com/ A Dull Roar

      The preservation of the colon is mostly a matter of Tico pride. You have to admit that their currency is way more attractive than boring dollars, jaja. However, it makes no sense economically for the vast majority of Costa Ricans to have their currency held hostage by the country’s rich, who are the ones who profit by the exchange rate swings and the very high interest rates here. The country is already unofficially dollarized, so they should take the next step and enjoy the lower interest rates and higher growth that countries such as Panamá have enjoyed for decades.

    • Sen Tralbank

      Yea, that’s it, that’s the ticket. Go ahead and convert to USD. Then when it becomes worthless in a few years all of you will be looking for caves to hide in for your stupidity and obvious Keynesian philosophy. You’ll be in good company with all the other idiots in the US gov’t who support the same idiodic thoughts.

    • Ken Morris

      I’d be curious to read an informed post opposing dollarizing the economy. It seems to me that the loss of control over monetary policy is potentially a huge loss to a small country like CR, yet I understand that much of the economy is in effect dollarized already so am not sure how important monetary policy is. I’d be interested in reading a post against dollarizing.

      BTW, it’s very unlikely to happen. ML has next to no clout, and as was mentioned, Tico pride is probably enough to kill the proposal. However, it seems to me that some gringo pride is fueling the support for dollarizing, so I’m not sure I put much stock in that view either. Mostly I’m interested in learning more from the opposition. Although the economy probably won’t be dollarized anytime soon, this is not an idea that will go away. It’s bound to resurface and I’d be interested in know the pros and cons better than I do, especially the cons (since the pros seem more obvious).

      • john wood

        I don’t always agree with Disgusted, but the colon and services here ARE tied to the dollar.

    • Ben

      This is going to shock everyone that hates my posts. I agree its time to get out of using the Colon and use dollars or anything stronger and more reconized. Here is the reason i say this because many Costa Ricans get paid in Colons but they pay there rent in dollars to there land lords and every time they exchange money from colons to dollars they lose money. I also think that killing the Colon will help tourism and trade with other countries all over the world. Costa Rica could be a power country if it changes its currency. Central banking system in CR makes no sense. Panama does not have a central bank they monitor there banks for saving on hand.

      • Yeims

        Where is their?

    • Derryl Hermanutz

      Who would you rather have deciding Costa Rica’s monetary policy: 7 Costa Ricans sitting on the Board of Costa Rica’s central bank? Or a handful of Wall St bankers and neoclassical economists like Greenspan, Bernanke and Yellen sitting on the Fed’s Board in New York? The Fed has done such a fine job regulating the US banking and money system that it’s a no-brainer to surrender CR’s monetary future into their capable hands, right? Argentina and all those other South American countries have had a wonderful experience selling bonds in US$, then being unable to earn dollar income to pay the debts, so the bankers come swooping in with structural adjustment programs that force them to sell their national infrastructure for a fraction of its construction cost simply to get dollars to pay dollar debts. Dollarization is a plague on nations whose banking system is not able to issue dollars. If push comes to shove Costa Rica can issue colones to pay Caja and other public commitments, but if CR was dollarized the government would have to default and start selling off the country to hedge funds and bankers in order to get dollars to pay its bills.

    • El Torito

      How about converting to the Canadian dollar, instead? Iceland appears to be interested. The Canadian banking system is certainly far more stable that that of the US. In fact, Canadian banks seem to be expanding internationally. (TD – Toronto Dominion Bank and Scotiabank – Bank of Nova Scotia, for example)

    • Yeims

      Roger the manipulations of the Central Bank. I believe their “commissions” have been quite high especially in the past two and a half years. I don’t believe we need anybody milking our dollars even more than they are already.