Measuring reserves and assessing international reserves adequacy in fully dollarized economies can be challenging. The role of international reserves may be different for these countries compared to countries with their own currencies. In addition, quantifying external risks and the opportunity costs that they face may be complex. This paper complements existing research by: first, exploring the challenges and judgements needed in measuring international reserves in dollarized economies according to country circumstances; and second, deriving a “synthetic” measure of international reserves for Panama and assessing its adequacy. As Panama does not have official international reserves, this paper proposes to use the statutory liquid assets in its banking system as its closest approximation. The paper is arranged in six parts: Section A provides an introduction. Section B summarizes the experiences of a sample of dollarized countries. Section C illustrates a stylized balance sheet of a central bank, depicting how international reserves are shown in a country with a central bank. Section Sections E discusses the liquidity buffers in Panama’s banking sector, while Section F synthesizes the illustrative measures of Panama’s international reserves to gauge reserves adequacy using the IMF metric. Section G discusses an indicator for government liquidity. Finally, section H concludes with a discussion of the policy implications.
1. San Marino’s economy has been remarkably resilient post-pandemic. However, real income remains well below pre-Global Financial Crisis levels lagging significantly behind other economies that also suffered a banking crisis. The economy has been systematically affected by neighboring Italy’s lackluster performance, but it has also been hampered by problems of its own, with persistent challenges in the banking system and pressing structural constraints.