Mayer Mizrachi, the mayor of Panama City, Panama, recently announced that the city government will begin accepting cryptocurrency payments for taxes, permits, fees, and other services. The accepted cryptocurrencies include Bitcoin, Ethereum, and two stablecoins. However, Mizrachi noted that the municipal government is legally required to convert these cryptoassets into U.S. dollars, as the Panamanian government mandates that public institutions can only receive funds in USD. To facilitate this conversion, the city government plans to partner with a local bank, which will handle the custody or liquidation of the received cryptoassets.

This move marks an interesting development in Panama's regulatory landscape regarding cryptocurrencies. Over the past few months, various jurisdictions around the world, including the United States at both federal and state levels, have seen a surge in pro-crypto regulatory activities. Panama City’s decision to accept crypto payments aligns with this global trend, although it remains to be seen how impactful this initiative will be in practice.

The idea of integrating cryptocurrencies into Panama’s official payment systems is not entirely new. Four years ago, a legislative proposal was introduced with the aim of enabling nationwide crypto payments. While this initiative gained some attention initially, it ultimately failed to progress and was eventually deemed \"unenforceable\" by the Supreme Court in 2023. Since then, no significant legislative efforts have been made to revive the concept.

In an attempt to bypass the legislative hurdles, Panama City’s municipal government has chosen to implement a workaround by partnering directly with financial institutions. However, this approach comes with notable limitations. As per existing regulations, public institutions must hold their funds in U.S. dollars, and Mizrachi acknowledged that his administration cannot circumvent this requirement. Consequently, any crypto payments received will be immediately transferred to a partnered bank, which will manage the assets either by holding them or converting them into fiat currency. This means that while the city government may accept crypto payments, it will still operate primarily in USD.

The preference for U.S. dollars in Panama stems from several factors. Although Panama has its own national currency, the balboa, the U.S. dollar holds greater legal precedence in certain contexts. The dollar is recognized as legal tender, and public entities are obligated to accept it. Additionally, the balboa is officially pegged to the U.S. dollar, further solidifying the dollar's dominance within the country's monetary framework.

This reliance on the U.S. dollar mirrors the circumstances that led El Salvador to adopt Bitcoin as legal tender. Like Panama, El Salvador uses the U.S. dollar as its primary currency, making the integration of Bitcoin particularly relevant in addressing the challenges of managing foreign currency transactions.

Mayor Mizrachi expressed optimism that this arrangement would enhance the circulation of cryptocurrencies within Panama's economy. However, the actual outcome may depend heavily on the terms of the partnership between the city government and the selected banks. If the banks decide to sell the received cryptoassets on the global market, the impact on Panama's domestic crypto ecosystem could be minimal. For cryptocurrency adoption to become truly meaningful, Panama may need to implement more comprehensive strategies that integrate digital assets into the broader economic fabric, rather than merely facilitating their conversion into traditional currencies.

Overall, Panama City's decision to accept crypto payments represents an intriguing step forward in the ongoing dialogue about cryptocurrencies' role in mainstream finance. While it demonstrates an openness to innovation, the practical implications remain subject to the constraints of existing legal frameworks and institutional practices.

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