Dollar rates in Colombia have once again caught the attention of business owners and analysts, especially in recent weeks, which have shown significant volatility. The situation has brought challenges for small and medium sized Colombian businesses involved in international trade, leading the government to launch Bancoldex, an initative to shield them against financial uncertainty.
The truth is that the dollar in Colombia has reached historic levels over the past two years, amid President Petro’s policies, and this has had a significant impact on the country’s economy.
Due to the volatility, the dollar in Colombia rose from COP 4,076 (US$1.02) in February to COP 4,253 (US$1.02) on April 21, representing a depreciation of nearly 6.84% in less than two months.
While a strong dollar can bring certain benefits to the economy-such as increased export revenues, inventory movement, and attracting foreign investment, since Colombian assets become more affordable for international investors-it also creates challenges, especially for importers, due to the rising cost of imported goods.
Volatility and profit margins
With a strong dollar, importers are forced to purchase more expensive products and raw material which will automatically affect the profit margins of businesses that rely on imported inputs. Additionally, these companies may become less competitive compared to those that produce locally or import for countries with more stable currencies.
This is the perfect scenario where business owners realize that the volatility of the dollar make financial planning more difficult, as costs can fluctuate significantly over short periods, creating uncertainty and risk in business operations. Additionally, and something important to keep in mind, is that international transportation costs and tariffs, which are calculates in dollars, also rise, further increasing total costs of imports.
‘Bancoldex’: The proposal for businesses in Colombia against unfavorable dollar rates
Due to the situation where the high price of the dollar is becoming a headache for small and medium-sized businesses, the proposal from the Bank of Foreign Trade of Colombia (Bancoldex) emerges, inviting Colombian businesses of all sizes to explore and take advantage of its foreign exchange hedging platform, a financial tool designed to reduce risk from sudden fluctuations in the dollar’s price.
As explained by Bancoldex’s Financial Vice President, Claudia Gonzalez, “foreign exchange hedging allows companies to lock. In a dollar price for their operations in advance, protecting them from unexpected increases or decreases in the exchange rate.” She also made it clear that this financial tool is “especially useful for companies that import or export, as they provide stability in their costs or revenues.”
What is a foreign exchange hedge and how does ‘Bancoldex’ work?
A foreign exchange hedge is a financial strategy used by businesses or investors to protects themselves from the risk of currency fluctuations. It involves using financial instruments, such as forward contracts or options, to lock in an exchange rate for a future date. This way, a company can avoid unexpected changes in the value of a currency that could negatively impact its costs, revenues or profits.
For example, if a company knows it will need to make a payment in a foreign currency in the future, it can use a hedge to set the exchange rate in advance, ensuring that the cost doesn’t increase due to an unfavorable movement in exchange rate.
Bancoldex offers tools and solutions designed with the needs of Colombian SMEs in mind, providing easy digital access. It offers competitive costs and specialized advisory services. One of its main objectives is to contribute to financial stability and enable a better cash flow planning for businesses.
Bancoldex has emerged as a platform committed to the growth of Colombian businesses and invites them to use these financial tools to face future challenges of the foreign exchange market with better confidence and preparation. Considering the recent volatility of the dollar due to President Donald Trump’s tariff policy, the institution issued a call to businesses to protect themselves and one of its goals for this year is to promote internationalization.
Earlier this year, the President of Bancoldex stated that internationalization is a key issue for the country. “This is a segment where we have a lot of work to do, especially with an international environment that’s becoming increasingly challenging. We believe in the diversification of Colombian exports and in the role the bank can play in supporting that entry-helping businesses integrate into global value chains. At the same time, facilitating their entry into international markets will be fundamental,” he stated.
Related: Dollarization: Should Colombia Adopt the US Dollar?