Central bank helping to cut value of U.S. dollar

The value of the U.S. dollar has taken a dip, and based on the exchange rate for Tuesday, the dollar is off about 12 colons from its high point last month.

Not all of this is the result of supply and demand. The Banco Central de Costa Rica has decided that public companies that are not banks can no longer trade on the daily Monex market. The bank’s board also decided last week that purchases of U.S. dollars for the public sector would no longer be reflected in the exchange rate.

The central bank will handle public sector needs for U.S. dollars from its own reserves, it said in a statement. This includes dollars needed by the Refinadora Costarricense de Petróleo S.A. for the importations it needs to make gasoline and other products. Also included would be the dollar needs of the Instituto Costarricense de Electricidad.

The newspaper La Nación said that part of  this decision was an error in an editorial Monday. The newspaper estimated that about 31 percent of the dollars in the Monex market were for public uses.

The central bank made the changes in order to  reduce volatility, it said. Until last week anyone bancocentral070114with a need for dollars could attend the daily Monex auctions to make purchases. As the U.S. Federal Reserve reduces the purchase of bonds to help the economy there, the dollar increased in value about 12 percent since the first of the year.

The dollar still is about 9.5 percent more than it was in early January, based on the price of 548.66 colons required to buy one today.

Many expats receive pensions and other payments in dollars, so they are more aware of the dollar fluctuations than the average Costa Rican. The increase in the value of the dollar has mostly negative effects on the Costa Rican economy. Imports cost more. Motor fuel costs more.  Even the airport exit tax, which is denominated in dollars, costs more colons.

So the central bank actions could be seen as an effort to reduce inflation.

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