1 Balboa – Panama

Panama's currency situation in 2004 was defined by its unique and long-standing monetary framework, which remained a cornerstone of its economic stability. Since 1904, the country has used the US dollar as its official legal tender, a system known as full dollarization. The Panamanian balboa existed only as a fractional coinage, pegged at a 1:1 parity with the dollar, with no paper balboa notes in circulation. This arrangement provided low inflation, eliminated exchange rate risk, and facilitated international trade and investment, which were vital for the Panama Canal and the large services sector.

The year 2004 fell within a period of steady economic growth following the full transfer of the Panama Canal from the United States at the end of 1999. The dollarized system provided macroeconomic stability, with inflation rates closely mirroring those of the United States. However, this framework also meant Panama relinquished control over its independent monetary policy; it could not print money or set interest rates to respond to domestic economic cycles. The country's financial stability was therefore heavily dependent on maintaining fiscal discipline and a robust banking sector, as it could not act as a lender of last resort in a traditional sense.

While generally viewed positively for its stability, dollarization was not without ongoing debates. Critics pointed to the loss of seigniorage revenue and the inability to devalue the currency to boost competitiveness. In 2004, these discussions were largely academic, as there was no serious political movement to abandon the system. The economy was performing well, and the dollar's role was deeply entrenched, providing a predictable environment for the significant foreign investment flowing into the country, particularly into the Canal expansion plans that were then in the advanced stages of approval.