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| San José, Costa Rica, Friday, March 19, 2010, Vol. 10, No. 55 | |||||||||
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| Readers give their opinions on the
declining dollar |
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| Supply
and demand controls dollar's value Dear A.M. Costa Rica: In response to the question asked by one of your readers why the dollar keeps dropping in value against the colon, when before it kept increasing in value. The answer is found in the economic law of supply and demand. Until the Banco Central allowed the colon to “float” — to find its real value — within upward projected bands, a ceiling and a floor, the colon was devaluated at a rate of 20 céntimos a day under what was the central bank’s controlled mini-devaluation policy. This policy was good for exporters and importers for they could calculate what the dollar was going to be worth for their future commercial transactions. However the artificially established exchange rate did not reflect the true value of the colon against the dollar, which needs to be known, because the supply of and demand for dollars in the country are not constant. True, dollars poured into the country with the construction boom and increased tourism until 2009 worldwide recession hit, but during that same time, dollars were flowing out at an ever greater rate. Ticos were importing more things than the “good times” allowed them to do. The idea behind the central bank’s new “band” policy was to sit on the sidelines and watch the “float,” intervening only when necessary. As long as the exchange rate behavior remained within the pre-established bands, there was no need to intervene, meaning use its reserves to buy dollars when the supply of dollars in the market was excessive against the demand, or sell dollars when it wasn’t, in other words, when the exchange was approaching either of the bands, top or bottom. With the establishment of MONEX, the place that was created so that selling and buying of dollars did not have to be done at the banks, this allowed for an even more well functioning of the law of supply and demand. By the way, MONEX is open to the public for transactions of over $1,000. The question of why has the dollar headed south so rapidly in recent months has been answered in several articles in local Spanish language newspapers. People are shifting their investments, CDs and other time-related instruments to colons because of the higher interest rate returns. That means they are selling their dollars to get into colons and that means an increase in the market of dollars — supply and demand again. The central bank sets the colon interest rates, like the Feds in the States do with the dollar, and the central bank knew by keeping the colon rate high, this effect was going to be produced, and because they knew it, the central bank flattened out the lower band to ¢500. At least you know how far down the dollar will or can go. The upper band was left with the projected increase. The sky is the limit there. So like with the Feds, keep your eye on what the central bank does, so when it drops colon interest rates, and it will, that is when the dollar will start being worth more again. Robert Nahrgang S.
Escazú Rush to convert to dollars has been slowing down Dear A.M. Costa Rica: It is empirical. The demand for dollars is down here in Costa Rica. You can argue that the dollar is declining in value against the colon because no one wants the dollar, simply no bids and the dollars slides because of no support. Or you can argue that there is an actual conversion of dollars to colons which would cause a slide in the dollar's value. Or both! An opinion: There are accounts that would normally convert colon reserves or saving accounts into dollars (banks, department stores, etc) I believe that with growing expectations of reduced inflation in Costa Rica and the fact that interest rates on deposits are higher here than in the U.S. (sort of a mini carry trade situation), that there is a slowing down in what was the usual rush to convert colon deposits into dollars. This in itself might explain fewer bids in the market for dollars. I have questions about the other possibility, the actual selling of dollars. I would have to see it to believe it. Jim Filerman
Heredia |
 Panamá is an option where dollar is currency Dear A.M. Costa Rica: I regards to Mr. Burg’s letter about the devaluation of the dollar he asks “does anyone have a clue what is going on“? I don’t know, and I doubt anybody does, however the consequences of what is happening could be far reaching. Many pensionado residents are struggling with their small U.S. pension checks, some as low as $600 per month. Many are considering moving to Panamá where there is no exchange rate and there currency is the dollar. Where $.35 buys a kilo of rice! Hamburger, fries and a coke is $3! The government should step in and take control of the central bank and stop this devaluation of the dollar before it chases all the Gringo retirees out of this country. I believe that those dollars spent in this country do contribute to feed local economies, and if we are all gone to Panamá, who is going to feed them now? I am going to Panamá next month to check things out. Many will await my return and report on living costs there. If I move to Panamá, my U.S. pension dollars go with me! Can Costa Rica afford this? Jay Clark
Flamingo beach Boycott Chinese products to support local firms Dear A.M. Costa Rica: I could not stomach enough to finish reading your headline story in today's edition re: Merciful legislators & the PRC import issue for automotive safety equipment. Costa Rica! You'd better wake up or face the same consequences as the rest of the 'modern' world. That is: rampant government abuse through police state legislation, increasing police presence, huge increases in fines, licenses, penalties of all sorts and a general deterioration of trust amongst Ticos. These traffic laws are nothing but a BAD joke on the citizenry of C.R. If the C.R. government cared about its people, this abuse would not be happening right now. If the C.R. government cared about you, its judicial branch would not be constantly letting dangerous criminals free. If your government cared about you, it would not be continually caught committing crimes for which YOU could face time in prison. You must BOYCOTT all Chinese products so that the businesses & manufacturing in your communities can stay strong and grow which is where a society builds: on manufacturing, not importing, not supporting slave labor and not bowing down to a den of thieves! Dennie Sartuga
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