Panama only ever had its own currency for a few years beginning in 1941. When Panama separated from Colombia, it used dollars. An anti-American president was elected and proposed a national currency. No one accepted it. He was soon deposed later. Panamanian coins are the same size, weight and composition of U.S. coins and are minted by the U.S. mint. Panama retains the Kennedy-size half dollar and did not adopt the new US $1 coin.
Rattling off a list of tangentially related facts doesn't make the point I made untrue. Sovereignty is relinquished with control of currency. Democratically opposed austerity can be imposed from those in charge of the currency.
Panama wouldn't exist in its current form without the influence of the United States on its history, so it's position as a vassal country with a pinned currency may be the only one it can occupy with any stability.
Why restrict it to the nation then? Why not city currencies? There are lots of countries - like India and China - where the gap in income between regions is larger than between countries.
It's a weird concept money, and I wonder what the right level is. I doubt it is optimised at the country level, but then a "better" notion like demographic similarity may be impractical, even if better, e.g. one currency for Northern Italy and one for Southern may be difficult to sell even if preferable, and ditto a unified Basque/southern French currency, or an eastern seaboard Yuan and a country China currency.
As a Londoner I suspect we'd all benefit from having different monetary policy in London and the rest of the UK. The argument I've heard is that fiscal and monetary policy have to be applied together, so it makes sense to have currency controlled at the same level as taxation.
