For many reasons, dollarization is an efficient and realistic option for this country. Yet, in order to last, it must be able to withstand banking panics without the assistance of a conventional lender of last resort and the lobby of protected industries to revoke dollarization. To this end, we advance a model of commercial banking close to that of Panama, under foreign law, and argue for free trade agreements with superpowers to smooth out real-exchange rate fluctuations.

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