From ChatGPT…
The monetary arrangements that led to Panama’s use of the US dollar were primarily established in the aftermath of the construction and operation of the Panama Canal. The key agreements include:
1. **1904 Hay-Bunau-Varilla Treaty:** This treaty allowed the United States to build and operate the Panama Canal. It also granted the US certain rights over the Panama Canal Zone. The US dollar became the official currency for transactions in the Canal Zone and was widely used by the Canal Zone’s population.
2. **1939 Panama Canal Zone Currency Agreement:** This agreement formalized the use of the US dollar as the official currency within the Panama Canal Zone.
3. **1971 Monetary Agreement:** As part of negotiations to return sovereignty of the Panama Canal to Panama, the US and Panama signed the 1971 Monetary Agreement. This agreement established the framework for the continued use of the US dollar in Panama, even after the Canal’s transfer to Panama’s control. The agreement allowed Panama to print its own paper currency (the Balboa), which was pegged to the US dollar at a 1:1 exchange rate. However, in practice, the US dollar remained the dominant medium of exchange in Panama.
4. **Dollarization in 2001:** In 2001, Panama fully adopted the US dollar as its official currency, replacing the Balboa. This decision was driven by economic considerations, including the desire to provide monetary stability, attract foreign investment, and simplify trade with the United States and other countries.
These agreements and historical circumstances collectively contributed to Panama’s ongoing use of the US dollar in its economy, even after gaining full control of the Panama Canal and its surrounding territory.
More on the dollar’s status in Panama and benefits we derive..,
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The monetary agreements that led to the use of the US dollar in Panama offered several benefits to the United States:
1. **Stability and Control:** The use of the US dollar provided monetary stability to Panama’s economy. The US dollar is considered a stable and internationally recognized currency, which can contribute to economic stability and confidence in financial transactions.
2. **Trade and Commerce:** The US dollar’s widespread use facilitates trade and investment between Panama and the United States. It eliminates the need for currency conversion, making transactions smoother and reducing transaction costs.
3. **Economic Influence:** Having the US dollar as the official currency in Panama can indirectly promote economic ties between the two countries. The currency arrangement may create a favorable environment for US businesses to operate and invest in Panama.
4. **Strategic Interests:** The US has historically had strategic interests in the Panama Canal and the region. The monetary agreements, including the use of the US dollar, could be seen as part of the broader relationship between the two countries, supporting cooperation and alignment on various matters.
5. **Regional Stability:** The monetary stability brought about by using the US dollar in Panama can contribute to overall regional stability in Central America, which aligns with the United States’ interests in promoting economic and political stability in the region.
6. **Influence on Policy:** The continued use of the US dollar might provide the United States with some level of influence over Panama’s economic policies, given the importance of maintaining the stability of the currency arrangement.
It’s important to note that while these benefits exist, the decision to use the US dollar in Panama was also based on Panama’s own economic considerations and goals, including attracting foreign investment, promoting economic growth, and ensuring monetary stability.