The currency in Panama is the balboa (PAB), which is legally pegged at a 1:1 exchange rate with the US dollar (USD). Both currencies circulate freely throughout the country, and most transactions accept either. This dual-currency system is unique among nations and stems from Panama's historical ties to the United States.
Panama adopted the US dollar as legal tender in 2007, following years of informal use. The balboa, introduced in 1904, remains the official domestic currency. Coins are minted in denominations of 1, 5, 10, 25, and 50 centésimos, and 1 balboa. Paper bills come in 1, 5, 10, 20, 50, and 100 balboa. Despite being issued by Panama, balboa coins are rarely seen in circulation-most people use US dollars for daily purchases.
US dollars are accepted everywhere: grocery stores, taxis, hotels, and markets. Balboa notes are used mainly in formal banking contexts or by institutions requiring local currency. The Central Bank of Panama issues balboa banknotes, while the US Treasury produces the dollar bills used in Panama. No physical difference exists between a $1 bill in Panama and one in New York-both are valid.
Since 1904, Panama has maintained a currency board system. The balboa is backed 100% by US dollars held in reserve at the Central Bank of Panama. For every balboa in circulation, there is a corresponding US dollar in the vault. This ensures stability and prevents inflation.
When a tourist exchanges US dollars into balboas at a bank, the institution withdraws a dollar from its reserves and issues a balboa note. The reverse happens when someone spends balboas-they're converted back into dollars. This mechanism keeps the peg intact. The system is similar to Hong Kong's, where the Hong Kong dollar is backed by the US dollar.
ATMs dispense US dollars exclusively. Even when a machine says "PAB," it's actually giving out USD. The denomination labels are symbolic. A $20 withdrawal appears as "20 balboas" on the screen, but the cash is physically a US $20 bill. This is standard practice across Panama's financial network.
There are two distinct forms of currency in Panama: the balboa and the US dollar. While both are legal tender, their usage differs by context.
| Currency | Denominations | Common Use | Issuer |
|---|---|---|---|
| Balboa (PAB) | 1, 5, 10, 20, 50, 100 balboas (paper); 1, 5, 10, 25, 50 centésimos, 1 balboa (coins) | Bank deposits, government payments, formal transactions | Central Bank of Panama |
| US Dollar (USD) | 1, 5, 10, 20, 50, 100 dollar bills; coins (rare) | Everyday spending, retail, tourism, services | US Treasury |
Despite the official status of the balboa, only 15% of cash in circulation is in balboa form. Most businesses quote prices in balboas but accept dollars. A restaurant menu may list a meal as "$12.50 balboas," but the cashier will take a US $12.50 bill without hesitation.
One non-obvious fact: balboa coins are not minted in large quantities. The Panamanian government produces fewer than 1 million coins annually. In contrast, over 3 billion US dollar bills are printed each year. This imbalance reflects the practical dominance of the US dollar in daily life.
Both currencies are used nationwide. In Panama City, downtown shops display prices in balboas but accept dollars. In rural areas like Chiriquí or Darién, locals often prefer US dollars due to familiarity and perceived stability.
Why does Panama use two currencies? The decision dates back to the early 20th century. When the Panama Canal was constructed, US engineers and workers brought dollars with them. Over time, the dollar became entrenched in trade and finance. After Panama gained full control of the canal in 1999, the government formalized the dual system through Law 13 of 2007.
For tourists, this system simplifies travel. No need to exchange money upon arrival. You can use your US dollars directly. However, some small vendors may not have change for large bills. Always carry smaller denominations.
Many assume the balboa is a weak or symbolic currency. This is incorrect. The balboa is stable and fully convertible. Its value is not subject to fluctuations because it is tied to the US dollar. Unlike countries with floating currencies, Panama does not face exchange rate volatility.
A common mistake is thinking that balboa notes are different from US dollars. They are not. A 100-balboa note is identical in size, color, and design to a US $100 bill. The only difference is the label. The US Federal Reserve prints all paper currency used in Panama.
Another misconception: that Panama uses the euro or the Colombian peso. It does not. The country has no monetary union with Latin American blocs. Only the balboa and US dollar are legal tender.
Consider a lunch at a café in Casco Viejo. The menu lists a sandwich for "$6.50 balboas." You hand over a US $10 bill. The server counts out $3.50 in change using US dollar bills. The transaction is complete. No exchange rate conversion occurs. The price was quoted in balboas, but the payment was made in dollars.
Now imagine paying with a balboa note. The server takes the $10 balboa bill and hands you back $3.50 in US dollars. The amount is the same. The system treats both currencies as equivalent. The choice depends on availability and preference.
I once visited a market in San Miguel, near the border with Costa Rica. A vendor refused a $100 bill, saying he didn't have change. He asked for smaller denominations. I pulled out a $20 bill and paid. He nodded and handed me back $10 in US dollars. The transaction took less than a minute. This is typical across Panama.
The currency in Panama operates under a stable, transparent dual system. The balboa is real and functional, but the US dollar dominates daily commerce. Understanding this setup avoids confusion during travel or business.
If you're unsure which currency to use, ask: "Do you accept US dollars?" Most places do. For formal transactions-like renting an apartment or buying property-confirm whether the contract specifies balboas or dollars. Some banks require balboa accounts for certain services.