Panama

Panama has long used the USD as its currency.

Years Targets and attainment Classification
1974-2017 domestic currency exists in form of coins only and is pegged 1:1 to USD, which circulates freely; liberal financial arrangements, no capital controls; no central bank but state-owned National Bank, which is both commercial bank and government’s fiscal agent (including arrangement of foreign borrowing), and National Banking Commission, which supervises banks and can (but very rarely does) vary reserve and capital requirements; from early 1970s rapidly growing, largely foreign-owned and foreign-oriented, banking system; 1977 treaty with US for later transfer of Panama Canal to Panamanian control; mid-1970s to late 1980s recurring fiscal deficits bring large rises in external public debt and debt service, stabilisation efforts partly successful; fiscal, financial and wider economic situation greatly worsened by US sanctions 1988, banks closed for two months and access to international capital markets and to IMF lost; idea of issuing new Panamanian currency considered but rejected; US invades end-1989 and changes regime, leading to normalisation, stabilisation and gradual clearance of arrears; 1999 Panama Canal handed over to Panama; from late 1990s financial liberalisation and upgrading of bank supervision in line with international norms; evidence of strong financial deepening, related to use of USD; absence of lender of last resort or macroprudential policy poses challenges in GFC, but response is very slow; 2010 efforts to remove Panama from OECD grey list of tax havens, 2014 efforts to remove Panama from FATF gray list, but 2016 ‘Panama Papers’ leak demonstrates continuing defects in regulation and transparency; 2016 expansion of Panama Canal to large ships completed; improvements over time in statistical data use of another sovereign’s currency UASC

Selected IMF references: RED 1974 pp23-25, 30, 45-9; RED 1976 pp27-8; RED 1978 p17; RED 1981 p35; SR 1988 pp7-10; RED 1989 pp1-2; RED 1991 pp29-30; SR 1991 pp3-4; SR 1997 pp6-9; RED 1998 pp17-23; SR 2004 pp13-14; SISA 2006 pp43-61; SR 2008 p8; SR 2009 pp5-6, 17, 19; SR 2010 pp9, 12, 17; SR 2012 pp12-13, 17; SI 2013 pp14-24; SR 2016 pp5-6, 9-12, 15-18; SR 2017 pp7-8, 12-13, 17-19; SR 2018 pp10-13, 18.

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