Why Panama Uses a Currency You Can’t Print: The Untold Story of the PAB

A Currency without Coins? The Unique Case of Panama's PAB

The Panamanian Balboa (PAB) stands out in the global currency landscape for one intriguing reason: it exists in tandem with the U.S. dollar. Since its inception in 1904, the Balboa has remained pegged to the USD at a 1:1 ratio. But Panama doesn’t print its own paper money. Instead, it issues coins—while U.S. banknotes circulate as legal tender. This hybrid system creates both stability and complexity.

The Origins and Stability of the Balboa

How Panama Pegged Its Currency to the U.S. Dollar

After declaring independence from Colombia in 1903, Panama adopted the U.S. dollar as its de facto currency. But to express national sovereignty, the Balboa was introduced soon after, named after the Spanish explorer Vasco Núñez de Balboa.

From the beginning, Panama’s economy was deeply tied to the U.S., especially due to the construction and operation of the Panama Canal. Pegging the Balboa to the USD eliminated foreign exchange risk and inflation volatility—two challenges that plague many Latin American economies.

Why the 1:1 Peg Still Works

Unlike other countries that struggle with currency devaluation or hyperinflation, Panama’s monetary discipline comes from not having a central bank. This means the country cannot print money at will. The use of the U.S. dollar ensures price stability and attracts foreign investment. For nearly 120 years, the peg has held strong.

This monetary model is rare but effective, making PAB one of the world’s most stable currencies.

How the PAB Functions Today

Daily Use and Public Perception

For everyday transactions, Panamanians use both Balboa coins and U.S. dollars interchangeably. A bottle of water might cost "1 Balboa," but you'll receive a U.S. dollar note as change. This duality is seamless to locals and tourists alike.

Credit card payments, online shopping, and business operations typically take place in USD. For most intents and purposes, PAB is the name—but USD is the tool.

Are There Any Balboa Notes?

Interestingly, Panama has never issued Balboa banknotes. All paper currency is printed in the U.S., while Panama mints its own coins for local use. These coins often match U.S. coin sizes, further blending the two systems. Special edition coins featuring national heroes or commemorative events are common.

PAB in the Global Financial System

Currency Conversion and International Trade

Since the PAB is directly pegged to the USD, it is rarely traded independently on foreign exchange markets. Investors and traders view it as a mirror of the U.S. dollar, meaning there's almost no speculation or volatility. This simplifies trade and remittances, especially between Panama and the U.S.

However, for financial institutions and fintech services, it's crucial to correctly label the currency. Systems must recognize both USD and PAB designations—particularly when operating in compliance-driven sectors like banking or money transfers.

Implications for Cryptocurrency and Digital Payments

Panama’s dollarized economy and stable monetary system create both opportunity and friction in the realm of digital finance. While the country has not adopted a digital Balboa, it remains a regional hub for crypto innovation, due to its openness to financial technology and lack of capital controls.

Businesses working with PAB must understand that digital systems still require local adaptation—even when operating under a familiar currency like USD.

The Future of the Panamanian Balboa

Is There a Need for Full Currency Sovereignty?

Some economists argue that Panama should one day issue its own paper currency to reclaim full monetary sovereignty. Others believe the current arrangement provides exactly what Panama needs: low inflation, strong investor confidence, and effortless global trade.

The lack of a central bank also forces strict fiscal policy, since the government cannot bail itself out with newly printed money. This limitation has long-term benefits in governance and budgeting discipline.

Potential Risks and Challenges

While dollarization protects Panama from many typical economic shocks, it also makes the country vulnerable to U.S. monetary policy. When the Federal Reserve raises interest rates, Panama feels the impact immediately—without having any say in the decision.

Moreover, the absence of a lender of last resort can be risky during banking crises. In such situations, Panama must rely on external support rather than internal monetary tools.

Final Thoughts: What Makes PAB Remarkable?

The PAB is more than a currency—it’s a symbol of Panama’s economic model. It combines national identity with monetary pragmatism, enabling the country to avoid the pitfalls of inflation and currency devaluation that trouble many emerging markets.

Its fixed peg to the U.S. dollar has become one of the most successful and enduring currency strategies in the modern financial world. While the Balboa may not be flashy or frequently traded, it quietly plays a key role in supporting one of Latin America's most stable economies.

In the end, the story of the PAB challenges conventional thinking about what a currency should be—and how it can serve a country not by flexing independence, but by choosing a path of partnership and fiscal restraint.