The balboa is one of two official currencies of the Republic of Panama, the other being the U.S. dollar. The balboa has a hundredths subdivision called the centesimo. The name of the currency was chosen to honour the Spanish explorer Vasco Nunez de Balboa, a popular figure in the history of Panama. Balboa was the first discovered that the Isthmus of Panama was a link between the Atlantic and Pacific Oceans. The balboa was first issued in 1904 to replace the Colombian peso, and it has maintained a one-to-one peg to the U.S. dollar since this time. The balboa is circulated only through coins of denominations from one centesimo to 2 balboas. All banknotes circulated in Panama are U.S. banknotes.
Although Panama won its independence from Spain in 1821, it did not become a sovereign nation until 1903 after more than 80 years as a department of Colombia. As part of Colombia, the Colombian peso was the official currency. After achieving true independence, the Panamanian balboa began circulation in 1904. It was introduced on par to the U.S. dollar and has maintained this peg ever since. The parity of the balboa to the U.S. dollar has kept the currency stable and inflation rates low. In 1941, a series of banknotes was printed for the balboa, but they were in circulation for exactly seven days before being recalled. No further attempt has been made to issue a Panamanian banknote since then.
The National Bank of Panama is the sole issuing authority of the balboa, but it has yet to be converted into a modern central bank. A two-tier banking system has not been established, and the National Bank of Panama performs duties of both a central bank and a commercial bank.
Panama has a well-developed economy and infrastructure. As of 2010, unemployment was only at 7 percent, and a food surplus was achieved in 2008. An economic boom in Panama produced an annual rise in GDP of 10.4 percent from 2006 to 2008. Panama is predicted to have the fastest growing economy in Latin America through 2014. The service sector is the dominant sector of the economy, and banking, tourism and trade all contribute substantially to the GDP. Tourism from Europeans alone rose by as much as 23.1 percent in 2008. In addition, since the handover of the Panama Canal by the United States, construction and industry has risen from canal-related projects.