Asked by Mathew Jameson
How does the value of a Panamánian balboa compare to that of a U.S. dollar, and why is this so? Write your answer in English.
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One Panamanian balboa equals one U.S. dollar (1 B/. = US$1.00). Panama has maintained that parity since it adopted the U.S. currency system after becoming independent in the early 20th century. In practice U.S. dollar banknotes circulate as legal tender in Panama while Panama issues its own balboa coins (and centésimos) that are minted to match U.S. coin denominations.
Why this is so:
- Historical and political ties to the United States (Panama’s independence and the building/operation of the Canal) led Panama to adopt the dollar.
- Dollarization and the 1:1 peg provide monetary stability, lower inflation and easier trade/financial integration with the U.S.
- Because Panama uses the U.S. dollar for banknotes and has no independent monetary policy, it effectively imports U.S. monetary policy and forgoes an independent currency-management regime.
Why this is so:
- Historical and political ties to the United States (Panama’s independence and the building/operation of the Canal) led Panama to adopt the dollar.
- Dollarization and the 1:1 peg provide monetary stability, lower inflation and easier trade/financial integration with the U.S.
- Because Panama uses the U.S. dollar for banknotes and has no independent monetary policy, it effectively imports U.S. monetary policy and forgoes an independent currency-management regime.
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