Panama's century-old dollarization and the stability it buys without a central bank

Since 1904, Panama has used the US dollar as its de facto currency, with its own balboa minted only as coins pegged permanently one-to-one to the dollar, an arrangement that leaves the country without a central bank in the usual sense and without the ability to set its own interest rates or create money to backstop its banks. The International Monetary Fund has repeatedly noted, in its Article IV consultations with Panama, that this full dollarization removes the risk of a sudden, sharp currency devaluation and the inflation spikes that often accompany one, which lowers the risk premium international investors demand and has helped keep Panama among the fastest-growing economies in Latin America across the 1980-2025 period, including a comparatively mild slowdown rather than a deep recession during the 2008-09 global financial crisis. The tradeoff, which the IMF has also flagged, is that Panama lacks a lender of last resort and a deposit insurance framework, so the banking system, regulated by the Superintendencia de Bancos rather than a monetary authority, must rely on high liquidity and capital buffers instead of central bank backstops during stress. That combination of currency stability without discretionary monetary policy is the main reason Panama's inflation and exchange-rate charts stay almost flat for decades at a time, while credit and banking-sector indicators carry more of the adjustment burden when shocks hit.