Will Chinese money circulate in Panama?
by Eric Jackson
The government of Panama, having ditched its old friend Taiwan in favor of full ties with the Peoples Republic of China this past June, is not wasting much time on changes that flow from that. Fresh from a series of meetings with China’s Foreign Minister Wang Yi, Panamanian Foreign Minister and Vice President Isabel Saint Malo unveiled the two-countries’ 12-point agenda for talks on the new relationship and amplified on that in a presentation to the National Private Enterprise Council (CoNEP) forum. CoNEP’s role in the constellation of Panama’s business organizations is that it represents the larger Panamanian companies that tend to do the most business with the national government and thus rarely has any sort of critical word about any administration, so it was not an openly skeptical audience.
Most of the 12 points are economic, although there are cultural, educational and law enforcement points as well. Some of the economic matters, like designating the Panama Canal as part of the Chinese New Silk Road project, are mainly symbolic. Several points appear to be of great importance, like China’s entry into Panamanian infrastructure construction in a big way that specifically mentions extending the country’s Metro commuter rail system from its now projected end point in La Chorrera all the way to David, and a much expanded Chinese role in Panama City’s banking district.
And then there is the subject of The People’s Currency (renminbi, or RMB), the units of which are the yuan (¥, worth about 15¢ on the US dollar but fluctuating despite government controls). CoNEP president Severo Sousa was upbeat about the possibility of yuan-denominated accounts in Panamanian banks when asked by the Metro Libre, but more guarded about other possible uses. Héctor Cotes, the president of the Panamanian Business Executives Association (APEDE) — people who run but may not necessarily own businesses here, typically less hesitant to criticize government policies and historic champions of improved education to give them a more skilled work force to manage — was more generally upbeat in the same story. He approved the use of any major currency with strong backing, the yuan as well as the euro, in general circulation and use in Panama.
Theoretically, Panama has the balboa and we do have our own coins. However, we have no central bank to issue money and since 1904 the balboa has always meant the US dollar. It is sometimes said that this is the constitutional order, but while some non-binding opinion might hold that this is so, the Panamanian constitution does not say that. The dollar would only be constitutional to the extent that it’s customary and because previous suggestions of a national currency have always been condemned as a species of dangerous lunacy.
Precisely what is meant by using the yuan in Panama surely means a great deal.
Renminbi as a currency to pay the Chinese — and perhaps the Panamanian — employees of Chinese companies doing business in Panama, but not generally accepted by Panamanian businesses? That would suggest something akin to banana plantation scrip, in which once upon a time workers here were paid, but which could only be spent in the company stores. That would eliminate a lot of the multiplier effect of Chinese business activity in Panama and surely set off labor protests.
The yuan in general circulation and use, alongside the US dollar and perhaps other currencies? One might imagine the arcane contract disputes, and the tawdry sorts of upscale people who would consult the daily exchange rate listings before deciding in which currency to pay their gardeners and maids. The rise of money changers — perhaps not at churches where the Gospels are taken seriously, but almost everywhere else — would be an expected retail consequence.
American economist Dean Baker opines that the multiple currency issue would not be a problem in itself: “Many countries effectively use more than one currency. My wife is Danish, so I know a bit about Denmark. While it maintains its own currency, it is common for stores and restaurants to take euros. … In a situation where you have serious problems with corruption, like Panama, having the use of other currencies might increase opportunities, but the underlying problem is the corruption, not the currency.”
There may be questions, well founded or otherwise, about the currency. Washington has complained many a time over the years that the yuan is undervalued against the dollar, driving and distorting the value of bilateral trade imbalances in China’s favor. Two years ago China devalued the yuan, making its exports to the rest of the world cheaper to buy while raising the Chinese prices of anything that anyone anywhere else would export to China. Now on Beijing’s end there are complaints of the renminbi’s exaggerated fluctuations against other currencies, and controversial calls from People’s Bank of China governor Zhou Xiaochuan for a market-set rather than politically determined value for the yuan.
“Capitalist roaders” whom Chairman Mao denigrated or not, however, today’s rulers of China aren’t leaving their country’s economy or currency up to some theoretical invisible hand. China is now the world’s second-largest economy and will soon overtake that of the United States, albeit remaining well behind a number of other countries in per capita income and standards of living. The New Silk Road project is intended to more closely tie China’s economy to those of Europe, Africa and the Middle East, while skirting around sometimes rivals Russia and India. And as oil economies around the world collapse, China is offering trade and investment in renminbi, and for those who accept the yuan instead of the dollar as payment for oil, a special ability to convert Chinese currency into gold. The Saudis and Venezuelans are among those who have expressed an interest, with economic motives for both and a long-running Chavista political position feeding Venezuela’s willingness to replace the petrodollar.
The geopolitical economy against which the questions arise is that “globalization” may have made the very wealthy richer in North America, Western Europe and Japan, but the economies of those regions — particularly of their working and middle classes — have suffered while the process has lifted hundreds of millions of Chinese out of poverty. China’s internal market can’t usefully absorb all the money that was made by its export economy over the past few decades, they are looking to invest overseas, and they attach many fewer political strings to their credit than do the financial institutions of the powers that they are supplanting across much of Asia, Africa and Latin America. Good relations with China are a hedge against taking distasteful orders from the likes of the World Bank or the International Monetary Fund — or so it seems now.
As the 12 points and Saint Malo’s explanation of them have it, though, the role of renminbi in the Panamanian economy is a matter up for discussion, not something that has been decided. It is expected, however, that in mid-November Presidents Juan Carlos Varela of Panama and Xi Jinping will meet and sign more than a dozen bilateral agreement, perhaps among them one of more dealing with the use of the Chinese currency in this country.
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