In the News from Panama

Why the U.S. Dollar Works for Panama

In the international economy, Panama is considered stable and reliable. One reason: the economic system is rooted in the U.S. dollar.

The use of the dollar makes Panama unique in the global economy and an easy trading partner. Other countries have adopted the dollar to one degree or another, but the dollar has been the foundation of the Panama banking system since the country’s inception as a republic in 1903, economist Mike Magallon writes in a recent article.

The dollar was recognized as the only currency to carry out transactions with the Panama Canal Company, during the construction of the legendary canal. “Our history is based on our relationship with the USA,” Magallon writes on ANPanama.

Magallon was responding to another article focused on the use of the dollar in other countries, such as El Salvador and Ecuador, which are nothing like Panama, he notes. Panama’s use of the U.S. dollar as currency is engrained in the economic system.

As property investors and ex-pats know, the use of the dollar makes everything easier. It also removes much of the instability from the economic system, providing stability and security, Magallon writes.

“We do not have a central bank, we do not have a currency, we do not have a monetary policy,” he writes. “Our banking system is governed by local supply and demand since it is not even governed by the rises or falls of the Fed.”

Panama’s economy continues to thrive, even during the rollercoaster economy. If anything, turbulent times in global economic circles tend to benefit Panama, which is seen as a safe haven.

Magallon notes several data points that illustrate that Panama’s dollar-based economy is robust. Before the pandemic, foreign direct investment (FDI) was 10% of GDP and the GDP per capita remains the best in the region. The World Bank recently predicted that Panama’s economy would grow by almost 6% a year in the next two years.

Magallon predicts GDP will reach $100 billion in 2025 — an economy powered by the U.S. dollar.