1 Balboa – Panama

In 1931, Panama found itself in a precarious currency situation, a direct consequence of its unique monetary system and the global Great Depression. Since its independence in 1903, Panama used the US dollar as its official paper currency but also minted its own fractional silver coinage, the Balboa, pegged at par with the dollar. This system relied entirely on the stability of the United States, but a critical vulnerability emerged: Panama held no central bank or significant gold reserves of its own, leaving its economy externally dependent and ill-equipped for a major financial shock.

The crisis was triggered in early 1931 when a severe drop in global commodity prices devastated Panama's key exports, particularly bananas, and drastically reduced shipping traffic through the Canal. This caused a sharp decline in dollar earnings and led to a panic-driven hoarding of US silver coins, which began to disappear from circulation. As the physical currency supply contracted, a crippling liquidity crisis ensued, making it difficult for businesses to operate and for workers to be paid, pushing the economy toward paralysis.

The Panamanian government, led by President Florencio Harmodio Arosemena, responded with an emergency decree in April 1931. This controversial measure attempted to resolve the shortage by authorizing the issuance of "Panamanian currency notes"—essentially provisional paper scrip in denominations of 1, 5, 10, and 20 Balboas—to supplement the vanished silver. However, lacking public confidence and full backing, these notes quickly depreciated, trading at a discount to the US dollar. This episode starkly revealed the fragility of Panama's dollarized economy and culminated in political upheaval, contributing to Arosemena's overthrow in a coup just weeks after the notes' introduction.