Panama has introduced a new coin, the one Balboa coin. The coin is being minted for Panama by the Royal Canadian Mint. It looks a bit like a Toonie, a CDN$2 coin and the 10 peso coin from Uruguay. The Toonie is worth about US$2, the 10 Pesos about US$.51, expect someone to take advantage of those facts. I will need my reading glasses to check change. The photo has five new Balboas, one Toonie and a 10 peso coin.
The government is investing in a major advertising campaign to be sure people understand the Balboa is coin of the realm. Panama like most developed countries has figured out a coin for lasts longer than paper and can reduce costs. The government in Panama says the country will save $550,000 a year spent returning worn out dollar bills to the US Federal Reserve.
Paper money dollars last about 18 months in circulation, coins about twenty five years. It costs more to mint a coin than to print a piece of paper but there is still a savings. In the case of Panama that math does not work, there is a new math.
Panama does not print US dollars, each US dollar costs a dollar to the government of Panama. It cost less than US$1 to purchase a Balboa from Canada. The magic here is in a word, Seignorage.
Seignorage is the difference between the cost of creating money, value of the bullion and manufacturing verses it’s stated value. We know Panama ordered 40 million Balboas from the Royal Mint. If they cost twenty cents each to manufacture, (I have no idea of the real cost), the cost of the 40 million Balboa coins is 8 million dollars, a net profit of $32 million dollars. This was a brilliant idea for Panama, a fast way to make some profit. Apparently 2 Balboa coins are coming soon too. I wonder if they paid their bill to the Royal Canadian Mint in new Balboa coins?
The US dollar regardless of current world economic events is negotiable worldwide, the Balboa is not. If you bring US dollars into Panama you can spend them here, if you take Balboa coins to the US they go into a drawer. Still another benefit, you brought a dollar, it was changed into a Balboa and the Balboa leaves the marketplace, the dollar you spent stays.
I suspect that the only US $1 bills you will see in Panama soon will be those brought by tourists. The National Bank will probably collect all the paper dollars they can as they come into the bank and return them to the US for a dollar and replace them into circulation with a $.20 Balboa.