Costa Rica Central Bank chief says Bank should have more control over dollarized banking

Costa Rica’s Central Bank (BCCR) (ICR Archive)

November 10^th, 2015 (ICR News) The president of Costa Rica’s Central Bank (BCCR), Olivier Castro, believes the Bank should have a higher degree of control over the banking sectors’ dollar-denominated financial activities, the bank chief told the financial newspaper El Financiero on Friday.

“I think the Central Bank has to send a bill [to the Legislature] to establish some financial instruments which today it doesn’t have. The Bank has instruments to manage and control [the economy and financial sector] in colones, but does not have [such instruments] in dollars, and this doesn’t make sense as this economy is highly dollarized,” Castro told El Financiero.

The dollarized financial sector in Costa Rica has nearly quadrupled in recent years, from lending, bond issues, investment products and other instruments, having reached some US $4 billion as of September.

Castro admitted that the Central Bank was concerned about the level of dollar indebtedness in the country.

Castro described the reserve requirements required of banks to issue dollar-denominated loans and other instruments – currently 15 percent – as “very low,” and that the Central Bank should have more power to increase dollar reserve requirements.

In fact, Castro told El Financierio that he believes that banks should be forced to seek the approval of the Central Bank in order to issue dollar-denominated financial products.

Currently only financial cooperatives must seek such approval.

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http://alligatorsnroadkill.blogspot.com/ John Dungan
If any bank is for it, then the rest of the world better be against it. I think that the dollar does indeed dominate the financial aspects of life in CR, and since that is that case, no CR bank should have any more control over it than they already do. If they want to change their monetary system to the dollar, then, that would be a horse of a different color.
costarick
It has been clear for some time, that Costa Ricans earning their salaries in colones and paying dollar loans and mortgages, which does exist to a large extent, is a dangerous combination for the banking industry and the economy in general. This is probably the reason that the Central Bank has been manipulating the colon/dollar exchange rate for the past two years. If the true exchange rate were ever put into effect (probably somewhere between 600 and 700 colones to the U.S. dollar), there would be many Costa Ricans in financial difficulty and banks as well, with the loan and mortgage defaults that would occur. Dollarization of the economy in total, like Panama, would be the best route to follow in the long term.
- Larry Worsham
  In September of 2009 the exchange rate was up to 585 colones to the dollar. They dropped it to around ￠500/$1 before the end of the year and have held it unrealistically low since that time so it’s been considerably longer than the past two years.
- Roberto
  Good points. Since 1904, Panama has benefited from the stability of the US dollar, as the backbone of the global financial system. For instance, this means that Panama doesn’t have to worry about out-of-control inflation, as a result of changing exchange rates. This makes Panama a more attractive investment and tourism destination.
- Ken Morris
  My understanding is that dollarization requires countries to forgo some macroeconomic arrows in their quivvers, and therefore might not be smart, especially for a small country like Costa Rica. One-size-fits-all macroeconomic policies don’t always work well for small states in the US either, but at least those states have a couple senators in DC who can (and often do) get special policies crafted to their special circumstances. Costa Rica doesn’t have those senators.
  Add that, were Costa Rica to dollarize, the Central Bank would just be granted the same control over the dollarized economy that it seeks now.
  The devil is of course always in the details, and as a rule I’m hesitant to grant the Central Bank here power, but it almost sounds to me that its requests in this case are reasonable. Costa Rica is a dual-currency economy, and it may make sense to empower the Bank to manage the dollar portion as much as it is empowered to manage the colon portion. Plus, I suspect Costa Rica might be better off remaining a dual-currency economy.
Yeims
The Central Bank of Costa Rica is a Rothschild bank, just like all the rest of the countries except a very few.
gc
the central bank and state owned banks are no more banks than a monopoly game bank. they exist for one reason. to create debt and then monetize it so it is paid by the people via currency debasement. all countries are in a race to out-debase the other with a few here and there faux attempt of austerity to protect their currency. after which they continue to go down the debasement rabbit hole. a perfect example is the Kronar which after attacking debt and cutting spending increases is back on the pony creating more unfunded future liability than ever. the answer is a hard wall separating economics and state which of course would never happen as it would expose the democratic socialist lie that welfare states give necessary benefits to the people and the people must have them. fake education, health care, welfare benefits workers pay out the nose for in government costs and currency debasements is one lousy trade. the game of currency value determined by comparison to other currency is one big lie when all currencies buy less food, housing and health care.
richard schlinder
Sen Castro is right in increasing reserve accounts above 15%.Good banks need higher reserves because of the currency wars that are happening.
richard schlinder
Before moving into a dollar based country,lets wait to see how bad this coming depression will be. With the fall of the dollar coming,the rules will all change and we will need to reevaluate the economies.High tech will drop,tourism will drop but our agriculture will hold on.The world will buy our coffee,sugar,bananas,tilapia,even our beef and hogs.
- Roberto
  Exporters in CR currently suffer because of the artificially low exchange rate.
  - richard schlinder
    Thank you for the reply.At this time ,you are correct but I forsee that to change in the future. People of the world will only have money for food and medicines.
    - gc
      while there is never not change, not all change is Armageddon. just this week MCW energy announced it’s plant was producing oil from tar sand at $30 a bbl using no water and leaving the sand 99.99% clean. un-subsidized tech is changing so fast that the future is the exact opposite of central planners dreams. there will be no grand public private partnership economy wide success. labor law and unions will never function efficiently. however if you are smart, learn a field and fail enough times you can succeed in self employment which is not out-sourcable. exactly the type of “informal work” government opposes is the only route for a family to be secure and independent. of course, we cannot allow that.
      - richard schlinder
        Okay.So I can start growing pot on my farm for distribution or open a pawnshop or a laundromat. Good thinkin’. Thanks.
      - gc
        a correct sustainable economy is one in which trillions of voluntary un-incentive driven transactions take place. i do not know what would work for you, i lost business before i succeeded in business. both were necessary.
- gc
  actually the dollar is and has been falling in VALUE since 1913. it is more accurate to say, the dollar has relative strength as other currency is debased faster. certainly you are not receiving more for you dollar except in specific collapsed markets. the temptation is great. the swiss finally gave in this year. costa rica has been valiant in support of it’s currency. it is popular now in left wing econ circles to see currency debasement as positive. you export your economic lack of productivity to support your inefficient home market with otherwise not employable labor and production. really though, even if debasement increases employment and export it leaves everyone who is working and paid in colones paying higher prices for everything. it is the biggest and most painful of all social democrat taxes.
  - richard schlinder
    It is a strange paradox that even though the dollar has decreased in value since my dad bought their house in the suburbs and he got his Chevrolet and mom got her first washer and dryer,the standard of living increased through the decades in the U.S.
    Currency debasement is the currency wars that I have referred to and this has happened many times in history.No matter how much money the FED prints,this scenario has to play itself out at some point.
    You have mentioned armageddon and yes I am a believer in an economic collapse worldwide.It is just one of a thousand reasons why I left the States.When it comes to the economy,history has shown that the countries that live close to the earth fare better through hard times than the imperialists.
    - gc
      unfortunately the “great cleansing” will be more like a “slow whimper”
Ben
Over the years Costa Rica has become a puppet of US intrests and US Corporations and US citizens. The US system is broke and corupt and things are going to get very bad in the US very soon. Costa Rica’s need to get the the dam US dollar out of there system of goverment 100%

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