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Panama: Adopting the Euro?

(Dubai, 25/10/2012) Panama is mulling the introduction of the Euro as a second alternative legal currency, in addition to the US dollar, to boost the nation's ties with Europe and reduce the economy's exposure to US fiscal policy.

The proposal, voiced during a press conference between Panama's President Ricardo Martinelli and German Chancellor Angela Merkel, would safeguard the nation against potentially adverse US dollar developments that could evolve as the next US administration announces austere measures to slash the nation's sizeable deficit. Despite on paper having its own domestic currency, the Balboa, this is pegged to the US dollar, at a ratio of 1:1, meaning the nation's economy is de facto, dollarized. The plan, which received an approving nod from Merkel, would allow investors to opt to denominate trade, investment and tax payments in either the Euro or the US dollar. European businesses operating in the nation, and through the Panama Canal would benefit from the ability to avoid foreign exchange implications.

Martinelli said that with its strong infrastructure, Panama could act as a conduit for European economic activity in Latin America. He expressed interest in opening negotiations with Germany towards a convention for the avoidance of double taxation, to build upon the Comprehensive Association Agreement signed recently between nations of Central America and the Europe Union.

Nations outside the Eurozone that have adopted Euro use include Monaco, Andorra, Kosovo and Montenegro, among others.

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