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A dollar mutiny has broken out in the global currency wars

March 8, 2012
Panama City, Panama

I’ve been having breakfast at Cafe Manolo’s ever since I started coming to Panama, going on ten years now. They make the best ‘batido’ ever… it’s sort of like a milk shake crossed with a fruit smoothie. And it used to be ridiculously cheap. Not anymore.

Economists use a term ‘menu costs’ to explain why retail prices are ‘sticky’ and resistant to change. The analogy is that, even in the face of rising input costs, a restaurant owner will resist raising his prices because it costs a lot of money to print new menus.

Apparently someone forgot to explain this concept to Mr. Manolo. Rather than printing new menus, the staff at this once cheap establishment simply scratches out the old prices and scrawls in the new prices.

IMG 0368 A dollar mutiny has broken out in the global currency wars

Without doubt, Panama is becoming very expensive. And if they handed out Academy Awards for inflation, I’m sure the first person that Panama would thank in its tearful acceptance speech would be none other than one Ben Shalom Bernanke, Ph.D.

As you’re probably aware, Panama is a dollarized economy. In fact, since Panama’s independence was engineered by JP Morgan in 1903, the country has never circulated its own currency. Officially, Panama’s currency is the ‘Balboa’, though it has been pegged to the US dollar at parity since inception, and US dollar notes are the only currency in circulation.

In the old days, this was practically viewed as being on the gold standard. Panama has never had authority to print US dollars and expand the money supply, just like currencies backed by gold in the 19th century couldn’t simply conjure more gold out of thin air.

Decades ago when the dollar was actually a respected store of value, Panama’s dollarization really meant something. Today is a different story. Yet while Panama is still unable to print its own currency, Ben Bernanke obviously has no such restrictions.

The trillions of dollars that Bernanke has created over the last few years have made their way into the financial system and reduced the purchasing power of US dollars. Right now this is being felt acutely with respect to fuel prices denominated in USD.

The consequent rising prices hit dollarized countries like Panama very hard because there is no central bank here to monetize the debt and finance populist deficit spending.

Case in point– Ricardo Quijano, Panama’s Minister of Industry and Trade, confirmed this morning that the government’s fuel compensation fund has completely run out of money. In the face of rising fuel prices, the government is now no longer able to subsidize gasoline.

As Quijano said, “We are almost in a national emergency. Oil prices are not going down.”

It seems clear now that the Panamanian government recognizes the challenges of being dollarized and is exploring a number of options to circumvent its limitations.

For example, while the government isn’t able to print US dollars, they do have the authority to mint their own Balboa coins. Only US paper notes are used in Panama, but there are local Balboa coins in circulation of similar look, feel, and value as their US counterparts.

Until recently, the Panamanian government had historically only minted penny, nickel, dime, quarter, and 50-cent pieces… more out of necessity to make change than anything else. Importing paper currency is easy, but importing coins is costly and inefficient.

Late last summer, though, the government began circulating a new 1 Balboa coin, equal in value to $1. Forty million coins were minted and issued at a cost of roughly 25 cents each, netting the government a cool $30 million in the process… not a trivial sum here.

As you could imagine, 2 Balboa coins ($2) are now on the table, making all of this a rather bizarre twist in the global currency wars of competitive devaluation.

The United States can print all it wants, and, at least until now, export the worst of the inflationary effects overseas to those poor suckers in Asia who keep buying Treasuries. Panama cannot export its inflation to the same extent, so rising prices have made a permanent home down here in the tropics over the last few years.

Panama is essentially absorbing all of the downside of being dollarized, but receiving little upside. Minting its own coins constitutes the country’s opening salvo in the currency wars– a mutiny of sorts on the dollar side. Panama is unwilling to take a backseat to Mr. Bernanke any longer and is taking steps to reduce reliance on US dollar hegemony.

If a country as small and US-aligned as Panama is taking these steps, it’s an interesting indication of what will happen in larger, quasi-dollarized places like Hong Kong and Saudi Arabia. Perhaps a “Dollar Spring”?


About the author: Simon Black is an international investor, entrepreneur, permanent traveler, free man, and founder of Sovereign Man. His free daily e-letter and crash course is about using the experiences from his life and travels to help you achieve more freedom.

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Comments on this entry are closed.

  • CaptivatingCuenca

    Here in Ecuador, where we also use the USD currency, restaurants print little stickers with the same background as the menu. They have the new price on them. Stick ‘em on and charge the new price.

    I’ve joked for a couple of years that Correa should make a big embossing machine with a condor symbol. Emboss every USD piece of paper and voilà, USD is now ECD, unpegged and able to find its own balance.

    But I like your idea even better. Mint coins. We don’t have much steel, but we have plenty of gold and silver, and copper, if the new mine plans are accurate.

    The problem here is all the USD coming in from US tourists and expats, plus China buying everything that it can get its hands on, for USD. The inflation rate here is now expected to be over 5%, which means probably 10% in reality.

    And here in Cuenca, it’s probably 20% or more.

    • jake garciaparra

      i think in a few year’s time ipads or their equivalent will be so cheap and so thin that you can have digital menu booklets. no menu costs there.

    • Roch

       Just curious why you feel Cuenca has such a higher rate of interest.

  • jake garciaparra

    haha great article. 

  • Tazzleberry Cat

    Ben “Shalom”…..yes, it’s those dirty Jews again. You lose lots of credibility the minute you start sneaking the ethnic swipes in the through the back door.  You’re implying(without stating) that his Jewishness has something to do with the destructive actions he takes.  Do you really need to stoop to this?  

    • Alan Carr

      If the hat fits, wear it.

    • Tazzleberry Dog

      It is the man’s name. Ben Shalom Bernanke is the man’s name. If you do not like his name – tough!
      The author does not imply anything by using his name.
      Rather, Tazzleberry Cat infers a ridiculous conspiracy out of Ben Shalom Bernanke’s name.
      It is absurd.
      Grow up T. Cat, and stop being such a PC idiot. 

    • Carpenter13

      His name IS Ben Shalom Bernanke, moron. And yes: from John Maynard Keynes to Alan Greenspan to Ben Shalom Bernanke to Rahm Israel Emanuel, and Paul Robin Krugman etc, all the influential Jewish officials in the West, but especially in Washington, seem to be eager to expand the money supply and borrow money. The money can be used domestically for the great leftist experiment, and abroad for example to buy off dictators in the Middle East and invade those who still give support to the Palestinians. (It’s not like it’s THEIR country’s currency that is being weakened. Pretty logical attitude if you ask me.)

      • Tazzleberry Cat

        “All the influential Jewish officials”. Wow. Just wow.  Do you keep that white hood under the bed near your SS uniform? Or in plain sight?  

      • HolocaustDenier

        Ooh, the Hilter reference. 

      • Rxn3

        Funny. Made me laugh.

    • Gdod

      He lost no credibility with me. Sometimes the truth hurts.

    • C

      You lose lots of credibility when you:

      1) Can’t be bothered to look up a Wikipedia entry before spouting your ignorant mouth off.

      2) Pretend like there isn’t a correlation between Israeli-Zionist interests and U.S. political and financial maneuvers.

      AIPAC wouldn’t get any attention if its lobbying had no force backing it up. You do you know what AIPAC is, right? If not, well, there’s always Wikipedia.

  • Frederick G

    Thanks for the interesting insights on the US dollar abroad. As an American homeowner, I’m curious to know if dollar based inflation in Panama is being reflected in home prices there. Stateside, we are seeing significant inflation also, but this has not translated into rising home prices. In fact, this is one of the main reasons that the Federal Reserve can so confidently assert a (misleadingly) low inflation rate.

  • Hiday_happy

    great article..i dont read it all because im tired..its just all about the country

  • Carpenter13

    Thank you Simon, we don’t usually hear much from Latin America “on the ground”, except for how everyone automatically loves communism – but you have to donate money to feed the doe-eyed girl child on the poster, who is impoverished because of capitalism no doubt.

     It is so strange to see the facts on one hand, and hear the voices of the establishment on TV on the other hand. Debt and interest rates piling up – but Paul Krugman says a country can never have too much debt, it always improves the economy. Unemployment increasing – but things are getting better, phony jobs will solve the statistics. Greece falling because of policies the U.S. is also using – but only whackos could think something bad could happen.

    Panama’s currency is one of so many signs. They keep getting more numerous. And now the establishment wants to set the Gulf aflame. If/when the dollar loses its status as reserve currency and falls, the U.S. economy will drop like a rock, since most manufactured goods are being imported. Countries tied to the U.S. in different ways, like Panama, will have a terrible time. I fear that ten years from now, we will look back and think of this year as the “good old days”.

  • Bogart

    Why not stop subsidizing gasoline?  This is always annoying as it is clear that the US Dollar is in the slow process of collapsing.  But that still does not mean that every bit of economic stupidity involves dollars.  Subsidizing fuel is a case in point.

  • C

    A couple years ago I took note of the fact that the rest of the world is beginning to build a Great Currency Wall around the United States to contain the barbarian dollar hordes. Various nations such as Turkey, Russia, China, India, Brazil, etc. are all beginning to swap each other’s currencies so that they can go off the dollar completely.

    There was also that Debkafile report that said India was going to pay Iran gold for Iranian oil. I never heard much about that again, so I’m not sure if it was confirmed or not. It could be that the deal got too much heat and one or both of the sides backed down on it, but I wouldn’t be surprised if we see a redux of backroom deals to that effect.

    Another random fact I am fond of throwing out there is that in 2011 Americans bought enough guns to arm the 14 largest standing armies in the world. That’s in one year. Favorable opinion on gun control has dropped to a record low of 26%, down from a high of ~70% I believe since polls started tracking it.

    People don’t often speak openly about what they know is coming, but they sure as hell are getting ready for Armageddon behind each other’s backs.

  • Peter Courtenay

    “Buy Gold and silver: Make the Elite Ruling Criminal Class eat thier worthless paper.”

  • Tazzleberry Cat

    What I find reprehensible is that SM drops his little implied slur and slinks away without outright stating what he thinks. Ok, SM:

    Is there some kind of world wide Jewish/Zionist elders conspiracy to ruin everyone and create a world government?  Do you believe something like the Protocols of the Elders of Zion really exists?  

    Stop hiding behind innuendo and implication and state what you think. 

    • Rxn3


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