March 05, 2010

Gresham's Law; Econ 101 review

 I am now in Costa Rica.  I have just left el cajiero at El Scotia Banco with 60,000 Colons(!!!), worth about 110 Gringo Dolares.  Lempiras, Cordobas, Dolares, Colons my wallet is stuffed with paper and my head hurts.  Gresham's Law states that 'bad money will drive out good'. 

So! if Gresham's law applies here, and the Estados Unidas Dolare is perceived to be good money and local not so good, (I am tryng to be kind, but 1,500.00 Colons fer a cuppa coffee?).  The Dolares will disappear and Lempiras, Colons, Pesos etc., will be returned to you whenever you do a transaction requiring change.  Gresham was right in Costa Rica, wrong in Nicaragua, and right in Mexico, El Salvador does not count because it has given up on trying to maintain it's own currency.

Nicaragua, interestingly, has its own currency, the Cordoba, but everybody, including the government prefers to deal in Dollars (dolares).  When I cross the borders in Nicaragua the Aduana (customs) and Migracion fees must be paid in dolares, payment in dollars usually results in dollars returned, if you pay in Cordobas you get Cordobas back along with that same sense of loser-ness that you get when you use your Canadian Tire money to buy merchandise at CTC. 

If you pay in Dollars in Mexico, or Costa Rica you will get Pesos, or Colons in return.  You will also get screwed on the exchange rate, in Mexico your purchase power is 10 Pesos per dollar instead of 12.5, in Nicaragua 5 dollars is the equivalent of 100 Cordobas instead of the $5.20 you would get at the bank.  In Costa Rica my $20.00 buys the value of 10,000 Colons instead of 10,886.00.  I don't know how badly you will get screwed in Guatemala because I only used Lempiras when I was there.

I don't know if I will be in Costa Rica long enough to make full use of my 60,000 Colons, I guess I will just have to eat lots and burn plenty of gas.  Oh well, I am now worth millions of Colons. ¡Soy rico!
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p.s., all this worrying about getting fair exchange may be moot, when I check my online bank statements I think El Alberta Treasury Branch, my bankers, are sticking me with exorbitant transaction fees por el exchanges.

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