Christmas bonus payments shake up colón-dollar value

November 27, 2009

On Nov. 12, the exchange rate hit its low for the year, as the buy value for $1 fell to ¢ 553.34 and the sell value to ¢ 563.58. The annual low meant the exchange rate has dropped by more than ¢ 30 per dollar since Sept. 17, when it reached a peak buy value of ¢ 585.90 and sell value at ¢ 595.37.

What do these numbers mean?

According to Ana Doyamam, of the financial consulting firm Aldesa, much of the dramatic fluctuation seen in the exchange rate is driven by the purchase of colones to pay taxes and aguinaldos, a Christmas bonus payment entitled to Costa Rican workers that usually amounts to about one-month´s pay.

“There are two elements that alter the exchange rate from around Nov. 15 until the early part of December,” Doyama said. “One is the payment of taxes. Companies pay taxes with colones, so they exchange dollars to acquire colones. The other element is the payment of aguinaldos. In the same manner that companies have to exchange dollars for colones to pay taxes, they have to do the same for aguinaldos.”

Fluctuations in the exchange rate stem from the demand for a specific currency. As the demand for the colón rises, the exchange rate dips, as colones increase in value. This seems to be the growing trend for this time of year in Costa Rica, as the exchange rate value plummeted to its lowest value in 2008 at the beginning of December.

The exchange rate dip is welcomed at this time of year, as holiday purchases rise; though, according to Doyama, after taxes and aguinaldos have been paid, the exchange rate should gradually increase to the prior levels.

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