Emerging Markets Rates and Currencies Handbook

82 Citi | Emerging Markets Currencies Handbook 2021 Citi in Costa Rica Citi Costa Rica was established in 1968, and is recognized as a market leader in FX products for its corporate and institutional clients. As such, Citi has won important FX awards from key financial publications such as Best Foreign Exchange Bank and Best Corporate/Institutional Internet Bank. With its focused role as a corporate/ institutional bank, Citi has the knowledge of the local market and the global presence to serve the largest and most important local and global companies based in Costa Rica. Citi is a key partner for the foreign exchange and payments process of the most important multinationals and multilatinas in the country. Market Overview The Costa Rican Central Bank, or BCCR (by its acronym in Spanish), has managed the CRC (Costa Rican colon) under a free float regime since 2015, when it abandoned its FX band regime. The main objective of its monetary policy is inflation control. The BCCR is an active participant on the professional exchange market (MONEX), where local dollars are backed up by its reserves. BCCR’s participation aims to ensure adequate levels of international reserves accumulation and reducing foreign exchange price volatility. The U.S. Dollar trades freely in the country and the BCCR, Local Exchange and depository maintain both colones and dollar accounting. The only limitation placed on the conversion of colones into foreign currency is that the FX must be transacted through an authorized agent such as a bank, hotel or licensed financial institution. The NDF market in Costa Rica has very limited liquidity and up until now, only trades OTC. Currently, there is no interdealer market and as such, any trade is usually analyzed and closed on a case-by-case basis, taking into consideration the limited market capacity. For its customers, Citi is available to make a market depending on our capacity. In Costa Rica, the trading rates market is mostly in the cash market. Bonds issued by the Government of the Republic are mostly bought by the market participants as a buy and hold strategy. There is no swap curve as market has not developed yet a floating benchmark. Banks rely on the repo and reverse repo market to address short liquidity needs, as secondary market for government securities is not deep enough. Citi makes market in short and long term rates as needed by corporate flows. In addition, during late 2020, the BCCR proposed a new regulation to start offering onshore NDFs. At Citi, we are currently working to launch this product during the first half of 2021. COSTA RICA (CRC — Costa Rican Colon)