U.S. Dollar Eliminates Risks

The US dollar has been Panama’s currency since 1904, although it is called the Balboa for nationalistic reasons. As a consequence, fiscal policy is the government principal macroeconomic policy instrument. Because Panama does not have a central bank to print its own currency, government spending and investment is strictly bound by tax and non-tax revenues and the government’s ability to borrow. Thus, creditworthiness is linked directly to public finances.

The disadvantage of not having an independent monetary or exchange-rate is not a serious problem for an economy the size of Panama. The advantages more than outweighed the inconveniences. Moreover, in an era of dollarization of other economies, one could say that Panama was the pioneer.

Panama uses the U.S. dollar as its legal tender, virtually eliminating any currency exchange risks to foreign companies operating here. The country has maintained an annual inflation rate of under two percent for the last 40 years, and just 2.3 percent in 2005 – one of the lowest in years. Panama's economy has become one of the healthiest in Latin America, in spite of the Latin American economic crises. Panama has no restrictions on the outflow of capital or outward direct investment.

Panamanian Currency: Balboa (B/.)

Exchange Rate: US$1.00 = B/.1.00 (fixed exchange since1904)