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The Central Bank of Costa Rica, will allow more people and businesses buy or sell dollars in the foreign exchange market (Monex).
The monetary authority will apply a pilot program with 500 individuals and companies beginning on January 19, 2009. However, in June, the market will be completely open to everyone. There also will not be a set limit that people and business can sell or buy in the Monex.
In the wholesale market (Monex), all of the financial entities who can negotiate currency with the public can participate such as: banks, finance companies, cooperatives, exchange houses, stock exchange posts and any other entity that is authorized by the Central Bank of Costa Rica. Currently there are only 30 financial institutions that can participate in the Monex.
Roy Gonzalez, manager of the Central Bank, said the initiative aims to increase competition among bidders and applicants of foreign currencies, especially in U.S. currency.
The organization wants to reduce exchange-rate differentials, namely “for transaction costs (purchase or sale) to decline,” said Gonzalez.
Gonzalez said that now the average difference is ¢7, but he believes that by opening the Monex it will lead to a difference between ¢3 and ¢4.
He added that they expect the relationship between the relationship between wholesalers and retailers will narrow and get closer to the limits of the exchange rate band.
The official said the decision to start with 500 individuals and companies was taken because this is the amount that the Central Direct platform supports. But the platform will be expanded and its security strengthened.
Interested participants will make their exchanges using the Central Direct platform (Internet), which today only handles long or short term electronic deposits to the Central Bank can be made.
The mechanism for obtaining one of the 500 available spaces to buy or sell dollars in Monex Costa Rica will be through an auction of slots that the Bank will hold on January 16.
To enter the auction, people and companies must offer a base amount of ¢250,000, or the equivalent of $450.
Those wishing to obtain a quota must subscribe in the Central Direct beginning today. For more details, visit www.centraldirecto.fi.cr.
“Beginning in January, an importer or exporter, may, for example, sell or buy $1 million. That person will offer that amount and there will be a bank or banks on the other side that can handle this operation. We will open a market that was for only a few up until now," said Carlos Melegatti, deputy manager of the Central Bank.
Melegatti explained that companies and individuals entering the Monex will play by the same rules of supply and demand of foreign exchange and bid for the best prices that only apply to wholesalers today. ”From 8 a. m. 4:30 p. m., which is the Monex schedule, the idea will be to go in, buy at the cheapest rate possible and sell at the most expensive,” he added.
TicosLand.com views this proposal with skepticism because, although the authorities at the Central Bank are saying that this is a way to reduce the buy and sell differences, the idea is for speculation not to generate an increase in the value of the exchange rate. They also say that caution must be taken with this type of participation so that there is no money laundering through this initiative.
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