5 Colones – Costa Rica

In 1997, Costa Rica's currency situation was characterized by a managed exchange rate regime facing significant external pressures. The country operated a crawling peg system for the colón, where the Central Bank (BCCR) would allow the currency to depreciate at a pre-announced, gradual rate (the deslizamiento) to maintain export competitiveness and manage inflation. This system had provided relative stability since the early 1990s, but by 1997, it was being tested by a growing current account deficit and substantial capital inflows, which complicated monetary policy.

The primary challenges stemmed from a combination of large-scale foreign direct investment (FDI), particularly into the booming electronics and tourism sectors, and rising public sector borrowing. These capital inflows created upward pressure on the colón, contradicting the BCCR's depreciation targets. To maintain the crawling peg, the Bank was forced to intervene heavily in the foreign exchange market, purchasing dollars and expanding the money supply. This contributed to inflationary pressures and raised concerns about the sustainability of the peg, as international reserves experienced volatility.

Consequently, 1997 was a year of transition and debate. The tensions within the managed system highlighted its limitations in a climate of financial globalization and set the stage for future reforms. While the crawling peg was maintained throughout the year, the accumulating imbalances and policy dilemmas paved the way for the more significant liberalization measures that would follow, including the move towards a crawling band system in 1999 and greater exchange rate flexibility in the early 2000s.