10 Colones – Costa Rica

In 2002, Costa Rica's currency situation was characterized by a managed exchange rate regime for the colón (₡) that was under significant pressure. The country operated a crawling peg system, where the Central Bank (BCCR) would allow the colón to depreciate against the US dollar at a pre-announced, gradual rate to control inflation and maintain export competitiveness. However, this system faced mounting challenges from large fiscal deficits, which were consistently above 3% of GDP, and growing public debt. These factors, combined with a widening current account deficit, fueled market uncertainty and led to persistent downward pressure on the colón, testing the central bank's ability to defend its official band.

The year was marked by a notable loss of international reserves as the BCCR intervened in the foreign exchange market to support the colón and smooth volatility. Despite these efforts, the currency experienced real appreciation due to inflation differentials with trading partners, hurting the competitiveness of key export sectors like agriculture and manufacturing. Furthermore, a political stalemate in the Legislative Assembly stalled crucial fiscal reforms, undermining investor confidence. This created a cycle where fears of a larger devaluation or a regime change prompted capital flight and increased dollarization, as residents and businesses sought safety in US dollars, thereby exacerbating the pressure on the colón.

By the end of 2002, the currency situation highlighted the unsustainable tension between the rigid exchange rate policy and loose fiscal policy. The BCCR's interventions were costly and increasingly ineffective, setting the stage for a major policy shift. This culminated in January 2003, when Costa Rica abandoned the crawling peg and introduced a dual-band exchange rate system, allowing for greater flexibility and marking the beginning of a transition towards a more market-determined exchange rate. Thus, 2002 served as the final year of a strained regime, exposing the critical need for fiscal discipline to support monetary stability.