Last year, the Costa Rican colón appreciated by 11% relative to the US dollar. It rose from approximately 596 CRC/USD to about 535 CRC/USD. Today, it’s closer to 513 CRC/USD. According to The Tico Times, this appreciation was mostly caused by an increase in tourism, exports, and foreign investment. The reason that these would increase the value of the colón relative to the dollar is because they increase the supply of dollars in Costa Rica. The higher supply of USD leads to a lower equilibrium price, just as with any other market with supply and demand, which in this case is the exchange rate. If the dollar is relatively cheaper, than the colón is relatively more expensive or stronger meaning it has appreciated. This continued appreciation will benefit Costa Ricans who want to buy goods from the US. However, it will hurt exporters because the world will be less interested in buying Costa Rican goods because they are relatively more expensive.
https://ticotimes.net/2023/12/07/costa-rica-exchange-rate-hits-9-year-high-versus-us-dollar
Wow! very interesting article. One question I do have is whether this appreciation is sustainable over a long period of time? where do you see it ending, and if it does end will it return to where it was before, or will it stay at its appreciated value.
ReplyDeleteIs the extra appreciation good or bad for the overall economy in Costa Rica?
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