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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)
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