Panama Fine-Tunes Crypto Law, Looks to Learn Lessons from El Salvador

The country’s crypto law was partially vetoed by the president, who has requested modifications, while the country eyes regional neighbor El Salvador’s experience

Panama City
July 12, 2022 | 08:00 PM

San Salvador — El Salvador began its foray into the crypto world last September, establishing bitcoin as legal tender, a move that put the country into the global spotlight and has inspired other countries to seriously consider regulating cryptocurrencies.

One of the many countries that is closely watching El Salvador’s crypto experiment is just over 600 miles away: Panama, with the drawing up of a Crypto Law that could open up its economy to doing business in the world ushered in by this new technology.

Panamanian President Laurentino Cortizo partially vetoed the Crypto Law in mid-June, and the National Assembly, which had passed the law almost unanimously in late April, must now fine-tune the legislation to incorporate greater controls on money laundering, among other modifications.

Panama’s interest in regulating crypto has implications for El Salvador, as Panama could emerge as a new ally in the expansion of the regional crypto economy, although the presidential partial veto could slow down the entry into the market of Panama as a regional crypto competitor.


Panamanian lawmakers admit that the proposed legislation was inspired by El Salvador’s Bitcoin Law, although the draft of Panama’s law is markedly different.

The main difference lies at the very heart of the legislation. While El Salvador’s is focused on establishing bitcoin as legal tender, Panama’s legislation is focused more on opening up to blockchain, tokenization and crypto assets in general, with a much broader spectrum.

The Panamanian legislation seeks to authorize persons to use crypto assets beyond Bitcoin, such as Ethereum, Ripple, Litecoin, XDC Network, Elrdon, Stellar, IOTA and Algorand.


The proposed Panamanian law also contemplates concepts such as smart contracts and decentralized autonomous organizations (DAOs).

In his vetoing of the bill, Cortizo asked the National Assembly for more detailed definitions of such terms.

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More ambitious

Panama’s Crypto Law is more ambitious in its plans for the interconnection of the crypto market with the country’s financial and securities structure. For example, banks must encourage the inclusion of crypto companies, and the law gives the stock market a green light for the tokenization of assets.

Panama does not intend to compete with El Salvador however, according to Felipe Echandi, an expert in digital payments and who participated as a volunteer advisor in the drafting of the Panamanian law.


Echandi points out that other countries also served as a reference during the drafting of the law, but acknowledged that El Salvador, which has established Bitcoin as legal tender, has the advantage of having provided “clarity” to such businesses.

What the Panamanian bill sought “is not necessarily to compete or replace El Salvador [as a Bitcoin market], but to offer a futuristic version of a Latin American financial center, taking the best ideas from the most competitive and ambitious jurisdictions in the world”, Echandi said, and which is why Panama incorporated ideas developed in the United Kingdom, Hong Kong, Singapore, as well as several US states, while at the same time considering money laundering standards.

A future partner

Mónica Taher, an advisor on international technological and economic affairs at the Salvadoran Trade and Investment Ministry, values Panama’s effort to join this new technological trend.


“The more countries that adopt Bitcoin as legal tender, or in this case create a regulatory framework, which is what Panama is doing, the better; congratulations,” Taher told Bloomberg Línea.

Bitcoin attracted investment for El Salvador from the first day of the announcement of the adoption of Bitcoin as legal tender, she says.

“The day after the law was passed, at 5am. a crypto exchange came from Guatemala, and by 9am I was meeting with them. That was the beginning of the avalanche of companies that came to us, and it hasn’t stopped.”

Despite the fact that Salvadoran legislation only regulates crypto, the nation receives investments from cryptocurrency companies, cryptocurrency exchanges, non-fungible tokens and blockchain in general, Taher says.


For his part, Paulo de León, director of economic and financial intelligence at Central American Business Data (CABI), believes that both countries are taking a lead in riding a trend that will be cemented in the long term.

“It is an adoption process, like when the Internet started, back in 1992, 1993, and became popular 10 years later. It has to be judged as a long-term bet, in the short term it is complicated,” De León says.

Just as it is convenient for ubiquitous payment methods such as Visa to have more people in their network, the same happens with cryptocurrencies, he adds.


“Panama may take away El Salvador’s prominence, but it is not bad news for that country. The more countries that get into bitcoin is good news.”

More than a Salvadoran-style case, Panama is moving forward in the style of Malta or Cyprus, countries which have designed regulations but not by being carried away by trends, but more calmly, according to Daniel Suchar, a Costa Rican financial analyst and university professor.

“It would be interesting to think of Latin America as a global crypto hub. El Salvador set a precedent at the regulatory level, but at the same time there was already a great adoption of cryptocurrencies throughout Latin America”

Maximiliano Hinz, CEO for Latin America at Binance

Panama’s advantage as a financial center

The crypto market in Central and Latin America has an encouraging outlook, Maximiliano Hinz, CEO for Latin America at Binance, one of the most largest crypto exchanges in the world, told Bloomberg Línea.


“It would be interesting to think of Latin America as a global crypto hub. El Salvador set a precedent at the regulatory level, but at the same time there was already a great adoption of cryptocurrencies throughout Latin America,” Hinz said.

But what does it take to become a crypto hub in the region?

CABI summarizes it in the following factors: having good hardware infrastructure, good connectivity and promoting a fintech system, with payment and service applications for local and foreign companies.


Panama has a higher proportion of the population with bank accounts, and that would favor a faster and organic adoption of cryptocurrencies if banks decide to venture into the space, analysts agree.

“Panama has an additional advantage to the rest of the countries in the region, it is already a financial hub. So, being a financial hub and at the same time having a crypto hub is going to make it easier to catapult it than the rest of the countries,” De León says.

In fact, the global financial sector is already targeting blockchain, he adds.


“There are still a lot of doubters in our region on the subject, but you see people like Mastercard, Merrill Lynch, JP Morgan, Goldman Sachs, of that caliber of the financial market, already heading towards bitcoin.”

In addition, bitcoin is already traded on the Chicago Mercantile Exchange and there is a regulated exchange-traded fund (ETF) on the New York Stock Exchange.

“We have many brokers in the United States already offering trading systems, right now FTX (a crypto exchange) is talking to long-established exchanges about how they exchange information for trading platforms to join,” De León says.

“We can’t cover the sun with a finger, Panama has a spectacular financial business center. In addition, it is the second largest economy in the region, Guatemala is the first, but because it has a population that is almost five times the size of Panama’s,” Daniel Suchar says.

In addition to its financial strength, Panama also has an extensive logistical interconnection, which would allow it to reach a wide range of potential partners, both in Latin America and the world.

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The risks of crypto in Panama

Blockchain is a secure way to record transactions, and that is not only limited to Bitcoin as a means of payment, but has business applications with the potential to improve the efficiency of companies and improve communication with suppliers and customers, De León explains.

“Within large companies there are internal transactions; for example, I am in the finance department and I need to make an announcement and I ask marketing for support to come and work with me, that is an internal transaction, with Blockchain you could carry internal transactions between departments to see how the generation of added value is going,” he says.

The ramification of the technology carries great potential, but it can also become a real headache, however.

Even just implementing Bitcoin, El Salvador has faced questions about money laundering measures and the impact on its economy; at the same time, with its Crypto Law, Panama would be exposing itself to a crypto universe in which where there are thousands of cryptocurrencies, and each one is a different world.

Suffice it to recall the case of Terra/LUNA, which collapsed largely due to a highly complex technological and financial logarithmic design, over which it had deficient risk management.

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Does Panama have the capacity to mitigate risks for crypto users?

“There are more than 11,000 cryptos, many will fall and few will remain. I think Bitcoin is one of those that is going to stay,” De León predicts.

The crypto market is currently undergoing a process of “purging” of projects, that have either been frauds or have codes that do not work properly.

Delegaciones de 44 bancos centrales e instituciones de supervisión financiera se reunieron en El Salvador con motivo de la reunión de la Alianza Financiera Internacional (AFI). El Salvador aprovechó para darles a conocer su experiencia con bitcoin. Foto: @Nayibbukeledfd

What lessons can be learned from El Salvador?

To mitigate the risks, Panama would do well to follow the path already taken by neighboring El Salvador.

The first lesson that can be learned from that country’s experience is obvious: regulating cryptocurrencies is very different from making them legal tender in national circulation, Suchar says.

“In El Salvador, the government has the risk of volatility when Bitcoin falls or rises; and another thing is, if you only allow traceability, what you are giving people is a new alternative to be able to exchange goods and services,” he says.

“You don’t have to see El Salvador as a rival. I think we have to see it as an interesting case study in our region that has similar realities and differences, and from where we can take the best and perhaps ignore the worst”

Felipe Echandi, an advisor on the drafting of Panama's crypto law

Panama should also take note of the role of international bodies, which have directed their criticism against El Salvador’s Bitcoin approach, citing the impact on its economy, financial system and tax accounts. As soon as Panama adopts crypto, it will be exposed to similar scrutiny.

Bitcoin is also a factor that is gaining more weight in the analysis of risk-rating agencies, which this year have downgraded Salvadoran debt to highly deteriorated levels, if not imminent default. It is worth mentioning that the Salvadoran government’s indebtedness and its tight liquidity also play a preponderant role in the cuts.

Unlike El Salvador, Panama has a reputation to protect as an investment grade issuer.

“Panama already has credibility at the financial level, at the risk-rating level, and it has also been trying to get off the list of tax havens. People are starting to believe a little more in Panama, trying to disassociate themselves from the Panama Papers,” Suchar says.

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From El Salvador “there are many, many good things to learn, such as the issue of financial inclusion, obviously the lasting effects of the Chivo Wallet [an electronic wallet created by the Salvadoran government to pay in dollars or bitcoin] are yet to be seen” Echandi says, adding that 70% of the adult population in that country did not have a bank account and now more than 80% of the Salvadoran population is banked.

“The fact that they have a digital payment application is revolutionary for a population that was excluded from the modern world,” he says, and points to the fact that 14% of businesses accept Bitcoin as a payment method, which he describes as “absurdly high”.

For the expert in digital payments, everything translates into business: Now El Salvador has an additional payment system, in addition to credit cards and bank transfers that can be used internationally.

“You don’t have to see El Salvador as a rival. I think we have to see it as an interesting case study in our region that has similar realities and differences, and from where we can take the best and perhaps ignore the worst,” according to Echandi.

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An historic financial shift

Legislation by itself does not mean that the population will automatically adopt crypto, however. Even in El Salvador, where the government gave citizens a $30 bonus for downloading its bitcoin wallet, the use of cryptocurrency is waning.

Market acceptance plays an important role, and in Latin America the process is happening, according to Binance’s Hinz.

“In countries like Argentina, the crypto community is very widespread, and in countries like Colombia, the regulator itself is the one that encourages the creation of a direct connection between banks and exchanges, which is still in a trial period,” he says.

In the rest of Central America, the discussion about Bitcoin and crypto assets has yet to take off, but the long-term benefits could outweigh the risks, according to Suchar.


Crypto is a paradigm shift, but which doesn’t have to change everyone’s habits.

“For example, my parents are over 65 years old and still visit banks and continue to use banknotes. Little by little, we will see this type of integration - not migration - of crypto assets with digital or virtual currencies of banks, but not overnight,” Suchar adds.

CABI’s De León identifies at least three benefits of a crypto dream in Central America: firstly, the attraction of a technological entrepreneurship system; secondly, crypto mining can generate income for countries in the region, such as Guatemala, which generates excess electricity; and thirdly, ushering in a historic financial revolution.

In retrospect, the world is still using a monetary system designed 300 years ago, when the world’s economies moved to paper money. Now, “we are at the start of the shift from paper money to digital currency”, De León adds.

“When we talk about purging, it’s not just crypto, it’s something bigger that includes fiat money. We are moving to digital money, and that’s why central banks are also going to issue their digital currencies. What is going to be the end result of digital money? I don’t know, we are going to know 20 years from now. As an economist, I am privileged to be watching this pitched battle,” De León says.

Translated from the Spanish by Adam Critchley