Central Bank

Follow Panama: Dollarize

Most central banks do one thing well: they produce monetary mischief. Indeed, for most emerging market countries, a central bank is a recipe for disaster.

The solution: replace domestic currencies with sound foreign currencies. Panama is a prime example of this type of switch. Panama adopted the U.S. dollar as its official currency in 1904. It is one of the best-performing countries in Latin America (see the accompanying table). In 2014, economic growth in Latin America and the Caribbean was a measly 0.8 percent. In contrast, Panama’s growth rate was 6.2 percent. Not surprisingly, it was the only country in Latin America to have realized an increase in the number of greenfield FDI projects

Panama Selected Economic Data

Show Me the Money

A number of economists have been warning about the Federal Reserve’s easy-money policy, but defenders of the central bank often ask, “if there’s an easy money policy, why isn’t that showing up in the form of higher prices?” Thomas Sowell has an answer to this question, explaining that people and businesses are sitting on cash because anti-business policies have dampened economic activity.

Dilma Announces Spending Cuts in Brazil

The new Brazilian government of President Dilma Rousseff has announced spending cuts of 50 billion reais (approximately $30 billion) this year. This amounts to approximately 1.3% of the country’s estimated GDP for 2011. Despite good intentions, that is still a very timid effort in curbing the size of government in Brazil: Total government spending (including state and local levels) runs at almost 40% of GDP.

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