The use of the dollar and interest rates

World currency

Today, we will try to dismantle an economic fallacy that has become popular "wisdom" and hence ammunition to demonize the financial system. 

It is calmly stated that, since Panama has the US dollar as legal tender, the interest rates at which we save (the passive rate) and at which we borrow (the active rate) should be similar to the rates prevailing in the American financial system. As we shall see, one has no direct relationship with the other. 

First we must recognize that the dollar, regardless of its strength, is a medium of exchange like any other currency and now cryptocurrencies. Thus, much of the value of any currency, will depend on its ability to be used for everyday transactions; such as buying and selling or paying and receiving. In these circumstances, the currency will be accepted to the extent that it can be exchanged or converted into goods as many times as possible, while retaining its purchasing value. Thus, stronger and more liquid currencies have greater purchasing power than less accepted or weakly backed currencies. There the dollar definitely has strength over many other currencies.

Savings and credit system

 However, when day-to-day transactions are neither paid nor collected on the same day, nor in the same month, nor in the same year, the economic system needs more than a medium of exchange. It needs someone willing to pay for today's transactions before collecting future transactions and vice versa. That is called credit.