Can The Panamanian Economy Be De-Dollarized?
(MENAFN- Newsroom Panama)
Without a doubt, one of the main competitive advantages that have characterized the Panamanian Economy is having a unified monetary Regime with a fixed exchange rate with the US dollar that is, being a dollarized economy. But, now in the context of the threatening statements of the President of the United States (US), Donald Trump, it is pertinent to reflect on the Panamanian monetary system.
This dollarized monetary system has made it possible to adjust the balance of payments and macroeconomic imbalances through the financial integration of the banking system, which is based on the free flow of capital and the fixed exchange rate with the US dollar. The main positive effects of this system are that the country has had stability in the general level of prices (low inflation), in the interest rate and in the real exchange rate. This does not mean that the dollars circulating in the country's transactions are donated or given away by the US. What happens is that Panama acquires those dollars due to the export of goods and services abroad. And, because we have a 1 to 1 exchange rate with the US dollar, savings are produced in terms of transaction costs.
However, there are seven (7) major currencies in the world that are used as reserves, that is, 95% of international reserves are in US dollars, Euros, Yen, Pounds Sterling, Canadian Dollars and Chinese Yuan; with historical average percentages in reserves of 61.6%, 21.2%, 4.6%, 4.4%, 2% and 1.9%, respectively. This means that there are alternatives to which Panama can set its monetary exchange rate to maintain low transaction costs and stability in macroeconomic prices (inflation, interest and real exchange rate). Another option could be to fix the Panamanian monetary exchange rate to the special drawing rights (SDR) which are the units of account created by the International Monetary Fund (IMF) and which are composed of a weighted average of the five (5) most important currencies: US dollar (43%), Euro (29%), Yuan (12%), Yen (8%) and Pound Sterling (8%).
This proposal has antecedents in the period 1987-1989 when Panama suffered economic sanctions imposed by the North American government, also the economist Miguel Ramos (RIP) always reflected on this issue, and, recently, the former president of the Republic, Ernesto Pérez Balladares, has raised the possibility in several interviews offered to various media outlets. It is an idea with great validity because there is a slow process of de-dollarization of the world economy. Currently, 20% of oil trade is carried out in currencies other than the US dollar. Decades ago, that was unthinkable. So, the answer to the question: Can the Panamanian economy be de-dollarized? is yes. The Panamanian economy can be de-dollarized in the event of a US intervention or aggression against Panama.
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