The Incredible Shrinking Colon

We’re not talking about a part of the body, we are talking about the official currency of Costa Rica,

Big Hand, Little Colon


the Colon. It’s pronounced coh-LOAN, by the way. And since one Colon can’t buy anybody anything, people here talk about Colones (coh-LOAN-eez).

It takes a lot of nerve for a guy who never even took an economics class to venture to explain all about foreign exchange and inflation and so forth, but I HAVE a lot of nerve. So here goes.

From time to time I’ll get a call from somebody back in the States asking about the money down here, and usually they ask what the dollar is worth down here in the local currency. I bite my tongue to avoid telling them their question is meaningless.

So I tell them it’s worth 550 Colones. They express amazement and say something like “that’s a lot!” As if one Colon would actually buy anything. Okay, one DOLLAR doesn’t buy much either, but we’ll get to that in a minute. If I am in a patient mood, I will tell them “no, 550 Colones won’t buy you 550 dollars worth of stuff.” “What WILL it buy?” comes the next question. “Oh, probably about a dollar’s worth of stuff” is my usual answer, which is true and not true, depending on what you’re buying and where.

Costa Rican c5000 and c1000 Notes replace c5 and c10 Notes from early 1900

Understanding money is not a task for those who are uncomfortable when things aren’t black and white, written in stone, etc. To be honest, I don’t think there is a person on the planet who totally understands it all. But sometimes just knowing that something can’t be totally understood is a step in the right direction.

The big problem is that there is no one thing to measure any currency against. Some people favor the gold standard. It does have the appeal of simplicity and the fact that it’s been around a long time. There are problems with the gold standard, most of which I don’t feel comfy trying to explain. One thing I can say is that there is always the question of why gold? Why not Platinum? Diamonds? Moon rocks?

Getting back to the Dollar vs. Colon cage match, the Dollar seems to rival the Harlem Globetrotters in winning percentage. So the Dollar is #1 then? Does being taller than Gary Coleman make you a giant? I haven’t had much luck finding really long term exchange rate data of Dollar to Colon, but we can look at the last nine years at least, just to get an idea of what’s happening. From January, 2001 to January, 2010, the US Dollar rose 67% against the Costa Rica Colon. But before the Dollar does his victory dance, I suggest he look around him. The Liberian Dollar also rose 67% against the Colon. The Jordanian Dinar rose 68%. The Peruvian Sol rose 97%. The Euro rose 155% and the Swiss Franc 161%!
chart of colon versus other currencies
In fact, I had a very rough time finding ANY currency that actually lost ground against the Colon over the last 9 years. Out of 30 countries I looked at, only Venezuela and Guinea (in Africa) did worse. And the only reason I found THEM is because I did a Google search on ‘worst inflation.’ And inflation is what it boils down to. Long time residents I meet talk of the days of 100 Colon beer. Pura vida.

The exact cause of the high inflation in Costa Rica is beyond me to understand, let alone explain in a blog post. My best guess is that it is because the government is putting more money into circulation, mainly by printing it to pay for government expenses rather than gather it through taxes and the like. Inflation is expected here, in healthy (?) amounts. Inflation runs double digits and I see no end in sight. Perhaps I’m just short-sighted. Otto Guevara, the Libertarian candidate for President, proposed using US Dollars as the official currency here instead of the Colon. Since he didn’t win, we won’t know how that would have worked out. It seems to have worked alright for Panama, but Costa Rica doesn’t have the Panama Canal as a revenue source. And dollarization didn’t stop inflation in the good ol’ US of A. I remember when you could get a big candy bar for a nickel. I remember when gasoline was less than 25 cents a gallon. I remember getting 25 cents a week allowance. I remember a lot. I wish I could remember the future… I could probably find a way to beat inflation.

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  1. Thanks for the info, this is a great site keep up the good work

  2. Whatever the exchange is at the time it’s far better than Cuba where now that Cuban Americans can send as much money as they want to their starving family, so the Cuban government takes 20%, when I exchange $100 in Cuba I get back $80, when I exchange $100 in Costa Rica I get back as much as $110, sounds like a deal to me.

  3. mauricio corleto says:

    hi…i have been in costa rica several times…and love the country rural area so much that i bought a property by la fortuna with the idea to retire, but i am afraid about the economy, every time i go for the past five years things change so dratically…i am 63 and my wife 57 and we are trying to make our few savings go further, so know we are going to david chiriqui panama to take a look, and in the future i may sell the property…i can tell you many unpleasant stories that i been trough in costa rica to a point that i feel not welcome to the country…i can star with just a comment…i been in ten different countries including cuba. and costa rica is the hardest to undestand how the ecomony and government works…forgot to mention i do not like monopoly…thank you for taking my humble opinion…sincereley..mauricio corleto..houston tx

  4. It all comes down to the price of a loaf of bread, gallon of milk, sack of rice. Currencies can bounce off one another until the cows come home, as long as the bottom line reflects the changes. I did notice this month that our electric and water bills were lower, not because we used less (we actually used more)but because the rates were lowered. Gasoline, however, is on the rise. Clearly, Costa Rica’s economic standard should be based on the value of gallo pinto.

  5. mauricio corleto says:

    thak you very much for your article i love the way you put it, simple and crystal clear…

  6. Tommy Clinton says:

    Good morning, What a fine web-site, spot on as they say. My question is, as of August 10, 2011, what do you see as the future excange rate of Colon vs. Dollar? My wife (a tica) thinks we should exchange our colones for dollars. She is in a panic that the colon will dump. I told her that the dollar could dump too. What does your crystal ball say? I know all paper money is "fiat", so maybe we should buy more gold and silver even though they are at the top of the curve (or maybe not) What to do, what to do?