How Panama Functions With No Central Bank

I just read an interesting article about Panama’s monetary system called “Panama Has No Central Bank. Here’s a summary of how Panama’s monetary system works and the effect it has had on inflation and the economy:

The absence of a central bank in Panama has created a completely market-driven money supply. Panama’s market has also chosen the US dollar as its de facto currency. The country must buy or obtain their dollars by producing or exporting real goods or services; it cannot create money out of thin air. In this way, at least, the system is similar to the old gold standard. Annual inflation in the past 20 years has averaged 1% and there have been years with price deflation, as well: 1986, 1989, and 2003.

Panamanian inflation is usually between 1 and 3 points lower than US inflation; it is caused mostly by the Federal Reserve’s effect on world prices. This market-driven system has created an extremely stable macroeconomic environment. Panama is the only country in Latin America that has not experienced a financial collapse or a currency crisis since its independence.

Read the article for more if you are interested.

One thought on “How Panama Functions With No Central Bank”

  1. Interesting. I was reading something else about how our system basically controls to prevent a deflation and prior to the depression deflations were a regular thing.

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