The Republic of Panama has a unique financial characteristic that sets it apart from many other nations. Since the construction of the Panama Canal in the early 20th century, Panama has used the U.S. dollar alongside its national currency, the Balboa. This practice has contributed to economic stability and controlled inflation, fostering a conducive environment for business and trade.

Benefits of Using the U.S. Dollar in Panama

Economic Stability

• Inflation Control: By adopting the U.S. dollar, Panama has mitigated hyperinflation risks that many Latin American countries have faced.
• Investment Confidence: Investors find the Panamanian market less volatile and more predictable due to its dollarized economy.

Read more about the stability and overall performance of the Panamanian economy in this dedicated article.

Simplified Trade

• International Trade: Using the U.S. dollar streamlines export and import processes, attracting international businesses.
• Tourism: Tourists from the United States and other countries using the dollar find it easier to conduct transactions without currency conversion hassles.

Financial Services Sector

• Banking Efficiency: Panamanian banks benefit from the dollarized economy, making international transactions more straightforward and efficient.
• Exchange Rate Risk Elimination: The absence of currency fluctuation with the U.S. dollar enhances stability in financial operations.

The Panamanian Balboa

Coin Circulation

• Coin Denominations: The Balboa circulates only in coin form with denominations equivalent to the U.S. dollar; 1, 5, 10, 25, and 50 centavos, and one Balboa.
• Interchangeability: Balboa coins can be used interchangeably with U.S. coins in everyday transactions.
• Coin Minting: Panama does not have a national mint, so Canada mints its coins.

Historical Context

The Balboa is named after the Spanish explorer Vasco Núñez de Balboa, the first European to see the Pacific Ocean from the New World in 1513. His exploration and conquests were pivotal in establishing Spain’s influence in the Americas. To honor his contributions and lasting impact on Panama’s history, the country named its currency the Balboa when it adopted its national currency in 1904, following its independence from Colombia and the establishment of the Republic of Panama.

Panama Canal Influence

• Canal Construction Period: The use of the U.S. dollar began during the construction of the Panama Canal between 1904 and 1914. This integration helped stabilize the economy during a period of rapid development.
• Economic Platform: The dual-currency system established a firm economic platform, steering Panama through various economic cycles with relative stability.

Governance and Regulation

• Government Policies: The Panamanian government regulates monetary policy efficiently, easing potential distortions between the two currencies.
• Financial Oversight: Continuous oversight ensures smooth operations and maintains public confidence in the financial system.

Implications for Emigrants

Ease of Financial Transition

• Emigrants from the U.S. experience seamless financial transitions with familiar currency.
• Simplified banking procedures for opening accounts and conducting transactions.

Cost of Living

• Goods and Services: Prices for goods and services are relatively stable due to the absence of currency fluctuation.
• Real Estate: Real estate transactions are straightforward, with properties often priced in U.S. dollars.

Employment and Business

• Job Market: A dollarized economy attracts international companies, creating diverse job opportunities.
• Entrepreneurship: Business operations, including capital raising and trade, are simplified when dealing with a globally accepted currency.

Challenges and Criticisms

Economic Dependence

• Limited Monetary Policy Tools: Panama cannot engage in independent monetary policies like adjusting interest rates.
• Economic Vulnerability: Panama’s economy can be affected by U.S. economic policies and inflation rates.

Currency Supply

• Coinage Dependence: The Balboa has been minted by the Philadelphia Mint and the Denver Mint. Relying on the US for coin minting could pose logistical and supply challenges in the future.

Tips

There is no consistency across Panama in the usage of the US Dollar sign ($) and the Balboa sign (B/.). It can take some time to get used to seeing the “B/.”. The best to remember is that it’s 1:1 the same as the US Dollar.

Conclusion

Panama’s usage of the U.S. dollar, alongside the Balboa, provides a unique model of economic stability and simplicity in trade. This dual-currency system has fostered confidence among investors and facilitated ease of transactions for both locals and expatriates. Despite some challenges, the overall benefits significantly contribute to Panama’s robust economic framework.

References

• Visit Panama: Official Tourism Guide. https://www.visitpanama.com/
• Central Bank of Panama: Overview and Economic Policies. https://www.banconal.com.pa/
• U.S. Dollar in Panama: Historical Perspective. https://www.historyofcash.com/panama/