Dollarization in Costa Rica? Good Bye Beloved Colon

The online gambling hotbed of Costa Rica may want to consider abandoning its much beloved colon in favor of the US Dollar. 

John Holtz of Inside Costa Rica had this to say about the concept of adopting the Dollar in Costa Rica:

"Think of this: At an exchange rate of somewhere around ¢520 colones to USD$1, the worst news the hotels could learn from The National Tourism Chamber (CANATUR) is that during Semana Santa they can expect an 80% or more occupancy. Until now, something they have been praying for!

"So why so many droopy faces?

"Well, hotels charge in dollars as do car rentals, tours companies, travel agencies, etc but have to pay just about 100% of their operational expenses in colons. They are taking a big hit on the spread unless, of course, they all raise their prices to compensate and that's inflationary. Even the government feels the pinch since it receives its 10% tax revenue, airport fees, and most duties in USD."

The only industry to benefit from the robust devaluation of the dollar are those importers who purchase in USD and resell their products in colones, Holtz adds.

The dollar dropped 14 cents to ¢523.05 in just one day this week.

According to economist Alberto Franco, speaking to Al Día, the reason for the sharp drop is the difference between the short term interest rate for savings in colones and that for dollars.

This difference, says Franco, has led to the "colonización" of investments.

With the lower demand for the dollar, the exchange rate drops.

Adds Holtz: "The answer is to put pride behind us and adopt the USD as our national currency. This artificial duel system is (1) too easy to manipulate and (2) causing economic havoc. Or, we can go back to the old system with mini devaluations of the colon when we where able to pretty much plan for the future.

"The irony of the whole thing is the USD has been the recent currency of choice all over the world and has been appreciating on global markets almost daily. But not in Costa Rica."

Alejandro Botticelli, Gambling911.com