What is the Currency of Panama?
The official currencies of Panama are the Panamanian balboa and the United States dollar. The country's economy is characterized by a free market that experiences low inflation. The service industry, particularly banking, commerce, and tourism, has propelled and stabilized the economy. The service sector, which includes the Panama Canal, contributes 80% of the country’s GDP. The country’s main exports are sugar, coffee, shrimp, bananas, and textile. The country’s economy began 2017 on a high note due to the recovery of trade-related sectors. There was a 2% growth in GDP in the first quarter. The stability of the country’s currency has also contributed significantly to the growth of the GDP.
History of Currency in Panama
The balboa is named after Vasco Núñez de Balboa, a Spanish explorer who discovered the island in the early 16th century. Before 1904, the Colombian peso was used in Panama until it was replaced by the balboa after Panama's independence. The balboa is divided into 100 cents and has been pegged to the US dollar since 1904. There is no central bank to control the flow of cash or to bailout banks during financial problems. The banks operate on an average capital adequacy ratio of 15.6%, which is twice the minimum acceptable ratio to cushion themselves from sinking. The US dollar is the most commonly used currency in day to day transactions, and therefore the economy has become dollarized. For a long time, Panama was considered a tax haven for international organizations, drug traffickers, and money launderers but after the 2007-2008 financial crisis, it has stepped up its effort in fighting these crimes. The country has signed a treaty with the US and OECD countries to share financial information.
The first balboa silver coins to be issued in Panama came in denominations of 2 1⁄2, 5, 10, 25, and 50 cents. They were small and were popularly referred to as the "Panama pill." Between 1907 and 1931, coins made of copper-nickel were introduced. In 1931, the one-balboa coin made of bronze was introduced. In 1966, the balboa coins were redesigned to match US coins. Modern coins in denominations of 1 and 5 cents, 1⁄10, 1⁄4, and 1⁄2 balboa coins have the same dimension, material composition, and weight as the coins. The most recent coin to be issued is the 1-balboa bi-metallic coin, issued in 2011. In addition to the currency in circulation, other commemorative coins in denominations of 5, 10, 20, 50, 75, 100, 150, 200, and 500 balboa also exist.
In 1941, Panama’s President Arnulfo Arias pushed parliament to pass a bill that would lead to the establishment of the Central Bank of the Republic of Panama. In 1941, the central bank was established, and its main role was to issue banknotes. The bank’s target was to issue 6 million in balboa notes but only managed to circulate 2.7 million as of October 1941. A week later, the president was replaced by Ricardo Adolfo de la Guardia Arango in a coup supported by the United States. The central bank was closed, and issued notes were recalled from circulation and incinerated. Today, Panama has no note banknotes of its own. Instead, all banknotes are in US dollars.