Costa Rica's currency is the colon. Like many foreign curren­cies, the colon's value fluctuates against the dollar according to supply and demand. For the last couple of years, rates have remained fairly stable. For example, in 2008, the rate was 540 to the dollar; two years later, in early 2010, the colon's value was about 545. That's only 4.5 percent a year—not much, when banks pay more than 16 percent interest on colones in CD accounts. Some financial experts predict the colon will remain stable, with devaluations paralleling inflation. (However, these could be the same financial experts who recommended junk bonds.) recently the colone went up and it stands on 514 colons per 1 dollar oct 1st 2010.
A big business in Costa Rica is buying and selling dollars. As you walk along the streets, money-changers badger you, offering to buy your dollars. When the value of the colon is going down, you can usually get a little more than the current rate. When it's going up, you break even. A word of caution: street currency exchange is illegal—although the police seldom enforce the law—and many money-changers are con men and short-change artists. You might end up with a handful of Colombian-printed counter­feit bills; 5,000- colon notes are the favorite fakes. By the way, a world-wide glut of Syrian counterfeit $100-bills makes $20-bills far easier to cash. Avoid accepting $100-dollar bills, especially from street money changers or gambling casinos. Even counter­feit one-dollar bills are circulating! Cash your money in banks, casade cambiosor in your hotel. It's legal and safe.
In early 2010, a nice rate of interest was being paid on time deposits of colonies. The rate was 16.80% for CDs of three- month duration and 18.75% percent for six-month accounts. (Dollar accounts pay about the same as CD rates in New York.) While this sounds like a terrific return on your investment, you must con­sider the possibility of the colon losing value against the dollar. You are gambling that the colon will either devaluate less than expected or that it will actually increase in value, in which case you come out way ahead. If the colon drops drastically, you'll lose money. My guess (and it's only a guess) is that deflation of the colons will be slow. The reason I say this is that Costa Rica has plenty of foreign reserves, placing the government in a strong position to control currency fluctuations.

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