The Panamanian balboa is pegged to the U.S. dollar at a one-to-one exchange rate, meaning that one balboa is equivalent to one U.S. dollar. This fixed exchange rate system was established when Panama adopted the dollar as an official currency alongside the balboa in 1904.
The reason behind this arrangement is primarily economic stability. By pegging the balboa to the U.S. dollar, Panama benefits from the stability of the U.S. economy, reduces the risk of inflation, and enhances trade relations with the United States. Additionally, since the U.S. dollar is widely accepted and used in Panama, it simplifies transactions and encourages foreign investment. Overall, this strong link between the two currencies contributes to Panama's economic stability and growth.
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