The Greenback

When the Central Bank of Costa Rica announced its decision to forego the currency exchange bands and allow the United States dollar (USD) to flow with greater freedom against the Costa Rica colón (CRC), many budget-conscious travelers thought that the end of tight monetary intervention would signal a period of affordable vacations in our country. However, that has hardly been the case; in fact, many tourists complain about how expensive Costa Rica has become in recent years.

According to Kanda Naknoi, an economics professor at the University of Connecticut Stamford, currency exchange rate dynamics are to blame for the lack of vacation bargains in Costa Rica. In a recent article published by college newspaper UConn Today, Professor Naknoi stated as follows:

This summer looks like a great time for Americans with plans to travel abroad. The U.S. dollar is now at a nine-year high and could go even higher, so that people who travel almost anywhere outside the U.S. will find that their cash can buy more.

It is important to note that Professor Naknoi’s choice of the expression “almost anywhere” does not include Costa Rica, and the relative strength of the CRC is to blame:

[The USD] is strong now for two reasons. First, the financial problems in Europe – especially Greece – caused investors to sell euros and buy dollars, and their buying pressure raises the value of the dollar. Second, the Fed – the U.S. central bank – has sent signals that it will likely raise the interest rate in the fall. A rising interest rate will make dollar-denominated bonds attractive, and as a result, investors have begun selling other currencies and buying the dollar.

The countries whose currencies have remained strong are Costa Rica and China. Also, some countries – such as Panama, Ecuador, and most countries in the Caribbean – peg their currency to the U.S. dollar, so prices there would not be affected by the strong U.S. dollar.

Following the economic rationale above, Professor Naknoi points out where U.S. tourists may visit to get the most value for their dollars:

Brazil and Turkey are good choices in terms of prices. Their currencies have depreciated more than the euro in the past one year. Some countries outside the eurozone, such as Denmark and Poland, fix their exchange rates with the euro, so they offer a bargain at the same rate as eurozone countries.

Ukraine and Russia offer some of the biggest bargains in terms of exchange rates. In the past year, the Ukrainian hryvnia has depreciated 75 percent, and the Russian ruble has depreciated by 50 percent. However, there might be some political risk involved in traveling to these countries.

There is currently a warning against traveling to eastern Ukraine, but the western part of the country should be alright. This could change over time, though.