Quick Costa Rican History, with too much focus on Numismatics and Finance

Not many people in America follow the politics or history of Central America, but the history of Costa Rica is actually quite interesting. I am by no means an expert, but we visited a number of museums, so I can summarize the country's history in a few sentences for the casual reader:

1) Costa Rica has a rich history of indigenous people whose art and culture go back ~9,000 years. In pre-Colonial times native Costa Ricans crafted complex gold and jade jewelry as well as stone and clay tools (pottery, weapons, tools). 

2) The Spanish conquered / colonized Costa Rica after it was "discovered" by Columbus in 1502. The area became a Spanish colony in 1524 and by 1560, the Spanish were rapaciously subjugating the native population in the name of Gold and God. Most of the Gold was taken and sent to Spain.

3) By 1600, 80-90% of the indigenous population had been killed by deadly European diseases or more advanced European military force, so the Spanish began importing slaves to work on expanding agricultural plantations (coffee, sugar and eventually bananas and rum).

4) In 1824, Costa Rica and other Central American countries formally achieved independence from Spain. Over the next 124 years, Costa Rica went through a series of popular and military republics and the economy was vulnerable to volatility in global banana, coffee and silver prices.

5) In 1948, Costa Rica abolished its military and formed its current Presidential Republic structure following a short-lived civil war. Instead of maintaining its own military, the USA provides implied military support via the 1948 Inter-American Treaty of Reciprocal Assistance, which effectively means that the US will intervene if Costa Rica is attacked. For the past 75 years the government has been in a state of unstable equilibrium punctuated by positive social changes alongside structural challenges of inequality and resource utilization. 

6) Costa Rica today has diversified its economy from agricultural exports to a more balanced mix of tourism and technology and agricultural exports, though the public/government sector remains outsized (owing to former Communist roots). The COVID pandemic severely impacted the tourism sector in 2020-2022 and led to higher deficits, a weaker currency and still-high unemployment (9.6% in July 2023); however, with 98% of energy coming from renewable sources, the country has not been impacted much by higher energy prices.

As a finance guy, I was particularly interested in the financial and monetary history of Costa Rica. The country is currently rated B2/B+/BB- (High yield) due to heavy deficit spending and a large amount of external USD debt. It is considered a “Frontier Market” (e.g., not at the level of an Emerging Market) with elevated external debt from the World Bank and other development banks.

The country went through a substantial inflation in the 1980s, which pushed the value of the Costa Rican Colon (CRC) from about 1.5/$ to about 540/$ today. As a result, the smallest coin is 5 CRC and it is worth about one US cent. In 1982, that same 5 CRCs was worth about $3. This has led to lots of zeroes in the menu prices at Costs Rican restaurants and to the widespread use of US$ in everyday transactions. On the positive side, inflation is modest today at ~4% and Costs Rica has seen lower inflation than many developed markets post-COVID.

Costa Rica does not mint its own coins, but it outsources that responsibility to the USA (since 1948). It does produce its own currency and in 2022 the country eliminated the largest bill, the 50,000 CRC bill (equal to about $100), primarily because it was too difficult for users to get change and because of the widespread adoption of credit transactions in the country.

I could keep going on about Costa Rica’s banking system, but I suspect nobody except me really cares. Instead, here is a picture of me outside the Central Bank of Costa Rica — their equivalent of the Fed. So psyched! (We tried to go in, but they did not accept tourists…)