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New Exchange System Begins Today
Beginning today there is a new
exchange rate system in Costa
Rica, as the Banco Central de
Costa Rica (BCCR) - Central Bank
- announced last Friday evening
that individual banks would be
allowed to set their own
exchange rate within a range of
low and high, known in Spanish
as "banda cambaririas".
The opening floor of the
exchange rate of the Colon to
the U.S. dollar was set by the
Central Bank this morning at
˘514.78 and the celieng at
˘530.22. Individual banks - both
state and private - and
financial institutions can offer
an exchange rate between the
floor and ceiling, which will be
posted on the Central Bank's
website for consumers to
compare.
The Central Bank, in an attempt
to avoid confusion has also
established a "reference rate"
that can be used as a guide for
currency exchange transactions,
like paying a dollar rent in
colones or vice versa.
The "reference rate" is the same
as the closing exchange rate on
Friday: buy is at ˘521.12 and
sell at ˘523.39.
The Central Bank is not setting
the exchange rate, allowing
financial institutions to set
their own rate within the range.
Each financial institution will
be required to report their
rates to the Central Bank within
10 minutes of any changes.
The move, according to Francisco
de Paula Gutierrez, president of
the Central Bank, is to reduce
inflation as that Central Bank
is in deep debt caused by its
policy of shoring up the colon
against the dollar. The bank has
spend millions of dollars per
year on the mini-devaluations
over the last tow decades since
the policy was instituted.
Costa Rica president Oscar Arias
said on Saturday that he is
pleased with the decision of the
Central Bank's board of
directors to finally implement
the free market exchange rate,
adding that the move is will
help the economic situation in
Costa Rica as inflation is
lowered and less dependency on
dollarization.
What the change means in real
terms is that before making an
exchange currency one has to
consult the Central Bank's
website to compare the rates
offered by the various
institutions.
The Central Bank will monitor
the exchange rate situation and
says it will adjust the high and
low limits depending on the
marker conditions, allowing
individual financial
institutions to adjust their
rates up and down as the market
conditions change.
The rate, according to the
experts, will be determined by
the amount of dollars in the
market place.
For example, if there are too
many dollars available and there
is no demand, the financial
institutions will keep the
exchange rate close to the low
end of the range, as they will
be forced to sell back to the
Central Bank at the low end.
However, if there is a high
demand for dollars and little
supply of the currency, the rate
will be on the high end and will
increase with the market
conditions.
The colon could easily reach a
high of ˘600 by the years end,
much higher that if the Central
Bank were continuing with its
mini-devaluation policies.
The Central Bank says that the
change is temporary, that is it
could be changed at any time.
However, it is important to note
that the last monetary policy
lasted 22 years.
As of 8:00am this morning none
of the financial institutions
had posted their rates, however,
they are expected during the
day.
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