The COVID-19 Crisis Response in Panama's Monetary System
This article is a summary of reporting by Yale School of Management. Originally published May 17, 2021.
Unlike nations with sovereign central banks, Panama could not monetize its fiscal deficits or lower interest rates to cushion the financial impact of the COVID-19 pandemic. The analysis emphasizes that leaving dollarization to expand the Panamanian balboa into banknotes would require establishing inflation-fighting credibility from scratch, posing massive systemic transition costs. As a result, the government remained constrained to fiscal measures, fiscal borrowing, and external financing to handle shocks.
AI Summary
The Yale School of Management assesses how Panama managed pandemic-era economic stimulus without the ability to conduct independent monetary policy or deficit monetization.
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