PAB - Panamanian Balboa

Overview of Panamanian Balboa

The Panamanian Balboa (PAB) is the official currency of Panama. Uniquely, it's pegged 1:1 to the US Dollar, making one Balboa equal to one US Dollar. While the Balboa is the official currency, US Dollars are widely accepted and used alongside it.

This dual currency system has contributed to Panama's economic stability and its reputation as a financial hub in Central America. The Balboa's stability and its link to the US Dollar have made it a reliable and trusted currency, both domestically and internationally.

History of Panamanian Balboa PAB

In 1904, the Panamanian Balboa was officially introduced as a replacement for the Colombian Peso. Following Panama's independence from Colombia, this was a significant event that solidified the nation's sovereignty and established its own unique currency.

The Panamanian Balboa is pegged to the US Dollar at a 1:1 ratio. US Dollars are legal tender in Panama and circulate alongside the Balboa.

Panama has never established a central bank to oversee monetary policy. However, the government-owned National Bank of Panama is responsible for managing non-monetary aspects, functioning similarly to a central bank.

Denominations of the Panamanian Balboa

Currently, the Panamanian Balboa is only issued in coin form, with the following denominations in circulation:

 

• 1 centésimo

• 5 centésimos

• 1/10 Balboa

• 1/4 Balboa

• 1/2 Balboa

• 1 Balboa

Panama does not issue Balboa banknotes; instead, US Dollar banknotes are used. These US Dollar notes are considered equal in value to the Balboa.

Reasons for Not Issuing Balboa Banknotes

Panama does not issue Balboa banknotes for the following reasons:

• Pegged to the US Dollar

Instead of issuing its own banknotes, Panama uses US Dollar banknotes as a medium of exchange. Since the introduction of the Balboa, it has been pegged to the US Dollar at a 1:1 rate. As a result, both the US Dollar and the Panamanian Balboa circulate concurrently and have equivalent value in Panama.

• Lack of a Central Bank

Panama does not have a central bank to oversee its monetary policy. This makes it difficult for Panama to control the money supply or implement monetary policies related to issuing banknotes. Only the National Bank of Panama is responsible for managing non-monetary aspects and supporting the financial system.

• Cost Savings

Using US Dollar banknotes helps Panama save on the costs of printing and maintaining its own currency. As a result, the country can allocate its economic resources to other areas instead of spending on the issuance and maintenance of its own banknotes, while still ensuring smooth transactions for both small and large payments.

Exchange Rate of Panamanian Balboa

Currently, the exchange rate between the Panamanian Balboa and the US Dollar remains fixed at 1:1. This means that 1 PAB is equivalent to 1 USD.

This fixed exchange rate has helped to stabilize the value of the Panamanian Balboa and has facilitated trade between Panama and the United States. This exchange rate has been maintained since the introduction of the PAB.

Factors Affecting the Value of the Panamanian Balboa

Although the Panamanian Balboa is pegged to the US Dollar, there are several factors that indirectly influence its real value. These include:

• Dependence on the US Dollar

Panama only issues coins and uses US banknotes. Therefore, the value of the PAB is closely tied to the USD. Fluctuations in the value of the USD on the international market will directly impact the value of the PAB.

• US Economic Policies

Since Panama does not have a central bank, it is directly affected by changes in US monetary policy. If the United States adjusts interest rates or federal economic policies, the value of the PAB will also change accordingly.

• Performance of the Panama Canal

The Panama Canal is a major source of revenue for the country. Any decline in the volume of goods passing through the canal will affect the national budget and impact the purchasing power of the PAB domestically.

• Domestic Inflation

Although the exchange rate is fixed against the USD, the real value of the PAB decreases when domestic inflation occurs. This forces people to spend more money to purchase goods and services.

Therefore, the value of the Panamanian Balboa is primarily influenced by US policies, especially the monetary policies of the US Federal Reserve. As a result, Panama has limited autonomy over its own monetary policies.

In essence, while the Panamanian Balboa is pegged to the US Dollar, its value is still influenced by external factors such as US economic policies and the performance of the Panama Canal.