RICO’s Q—A good friend sent me an email the other day, rhetorically asking me why the dollar is so cheap in Costa Rica. He’s been here for decades, even longer than me, and remembers when the rate was about 200 colones to one US dollar.
I didn’t have a solid answer. It just didn’t sit right that the dollar is trading below 500 colones here, especially when you look at places like Canada and Colombia where the dollar’s strength is tearing their currencies apart.
I started digging, and soon found myself swamped with opinions—experts and wannabe experts alike—but no clear explanation, just more questions. So, I figured, why not ask AI? I typed in, “Why is the dollar so cheap in Costa Rica?” and waited for some clarity.
Here is the AI response:
The term “Costa Rica’s cheap dollar” refers to the recent trend where the value of the
Costa Rican colón (CRC) has strengthened significantly against the US dollar (USD), making the US dollar “cheaper” (weaker) relative to the local currency.
The US dollar’s value in Costa Rica often feels surprisingly low for many visitors and expats, and it’s driven by a mix of economic, social, and policy factors unique to the country’s setup. On the surface, it might seem odd, since the dollar is one of the strongest currencies worldwide. But in Costa Rica, when you’re dealing with dollars, it can feel like it doesn’t stretch as far as you’d expect. Let’s unpack why.
Costa Rica’s official currency is the Costa Rican colón (CRC), and while the US dollar is widely accepted, the exchange rate and day-to-day availability play a big role in why folks feel the dollar might be “cheap” or less valuable there. One major reason is the country’s currency exchange dynamics and inflation rates. The colón has experienced inflation over the years—its value slowly falling compared to the dollar. That means if you’re trading colones for dollars, you often get fewer dollars for a ton of colones, even while the dollar remains fairly steady against other global currencies.
But what really shapes the perception of a “cheap” dollar in Costa Rica is how pricing works for goods and services. Locally, prices are often set in colones, factoring in local wages and costs. When businesses accept dollars, they usually do so at a marked-up exchange rate to cover their risk and currency conversion costs. So even though the government sets an official exchange rate, the real-world rates in shops, restaurants, and tourist spots tend to favor the colón slightly—meaning your dollar doesn’t go as far as the official math suggests.
Then there’s the influence of tourism and expat demand. Touristy zones tend to peg prices closely to the dollar because many visitors pay or think in dollars, but that also pushes prices up. Meanwhile, local areas less touched by tourism stick more to colón pricing, which can feel cheaper but doesn’t always mean better dollar value when you convert. The dollar’s purchasing power fluctuates based on where you are and how businesses offset currency risk.
Macro factors also sneak into the story. Costa Rica’s balance of payments, foreign debt, and currency reserves all impact the colón’s stability against the dollar. The country leans heavily on tourism and foreign investment, which means any shock to those sectors can cause ripple effects in currency valuations. On the flip side, Costa Rica’s government tries to stabilize the market through central bank interventions, but that can’t erase all volatility or cultural pricing habits.
So why does it feel like the dollar is cheap? Because the interplay between local currency inflation, exchange rate markups, pricing strategies in tourist-heavy spots, and the general economic environment means the real-world rate of exchange and spending power don’t align with what you might expect from the US dollar elsewhere. For travelers and expats alike, it boils down to the cost of living and local pricing reflecting a complex dance between two currencies—where the dollar might look strong on paper but feels less mighty in your wallet.
If you’re heading to Costa Rica, keep in mind that embracing the local currency and paying in colones often stretches your money further. And remember, this “cheapness” of the dollar isn’t a sign of weakness but a reflection of a unique economic landscape shaped by inflation, exchange rates, and tourism-driven pricing. It’s a reminder that money’s real value depends on where you use it — and in Costa Rica, the dollar’s strength plays a different tune.
Hope that helps.
In the grand scheme, currency fluctuations are part and parcel of any open economy. It’s a moment that tests policy, business savvy, and personal resilience alike—while also offering unique windows of opportunity for those ready to make the most of it.