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Fernandez, Mustafa, Saenz

Lori Tang

Fin 370

April 17, 2012

Country Research Project: Panama

Panama is located in Central America and its known as the Republic of Panama. The capital of the country is Panama city. Panama has the third largest economy in Central America and it is the fastest growing economy after the former recession in the 2008. In 2010 Panama was the second mostcompetitive economy in Latin America. Panama is unique as far as “tax heaven”, because it has no currency of its own, instead uses the dollar.
The monetary system in Panama has very unique characteristics that attribute great benefits to its economy. The United States dollar serves as the official paper currency and legal tender in Panama. However, the local currency of Panama is the “Balboa”which, since its creation, has remained tied to and equal to the United States dollar. By adopting the foreign tender, Panama’s organizations and institutions eliminate the devaluation risk of the local exchange rate. Dollarization will not only lower the real exchange rate volatility, but also lower inflation rates. In most cases, all these factors will lead to an economic growth and stability inthe country. Successive governments have chosen to maintain the United States dollar as the paper currency of the country, because of the monetary stability attached to it.
Without the need for a financial institution to issue and distribute the paper currency, Panama didn’t posses a central bank. On the other hand, the national bank of Panama (Banco Nacional de Panama or BNP) was in charge forall nonmonetary –regulatory aspects of central banking. Along with BNP is the National Banking Commission which is responsible for all legal processes of the national regime bank s transactions. Due to the dollarization, Panama could not have a monetary policy, because it lacked the instruments to implement such policy. In effect, Panama's money supply was determined by the balance of payments, bymovements in interest rates, and by the United States, which controlled the number of dollars available for the country's international transactions.
Remarkably, Panama's monetary system has benefited the country in numerous ways. Probably the most relevant ones are the fact that the country has enjoyed almost automatic monetary and price stability. International transactions have been facilitatedby the use of the United States dollar. The foreign exchange constraint felt by most developing countries has been obviated by the dollars circulating in the economy and the ability to borrow.
bank being just a regulatory agency. Lacking a central bank like the Federal Reserve System in the USA, or Bank of England in the UK means there is far less debt for the country. Central banks aretypically privately owned so the interest paid goes into the pockets of private bankers instead of the government or the people themselves.

Panama Stock Exchange was created in 1990 and has played a crucial role in the development of Panama’s regional financial centre. Most transactions includes government bonds and exchanges in dollar-based securities. Bolsa de Valores de Panamá, S. A., (the PanamaStock exchange) is a corporation organized under the Laws of the Republic of Panama. Most of its shareholder revenue are made up of the main local Banks. Among then are Banco Nacional de Panamá (National Bank of Panama) as well as commercial, insurance and industrial corporations. Indivdual professionals such as businessmen and stockbrokers serve to improve processes in these institutions.
Theinternational exchange code for Balboa is PAB. Due to its relationship with the U.S. Dollar, the currency is traded on the foreign exchange markets on a par with the U.S. Dollar. This currency is available in denominations of 5, 10, 20, 50, 75, 100, 150, 200, and 500 Balboa coins. One Balboa is further divided into fractional units of 100 Centesimo. The Banco Nacional de Panamá, or the Central...
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