Updated: Jun 2, 2021
The official currency of Panama is the Balboa, named after Spanish explorer Vasco Núñez de Balboa, who discovered the Pacific Ocean in 1513. One Balboa is divided into 100 cents. Since 1904 one Balboa equals one US Dollar and since then, the US Dollar has legally circulated in Panama. In other words, in practice, the currency used day-to-day in Panama is the US dollar, which is also legal tender. For this reason, Panama is considered a dollarized country and was the second economy in the continent to become a dollarized economy. Currently there are Panamanian coins that have the same weight, dimension and composition of the coins used in the USA (1, 5, 10, 25 and 50 cents). Panama also has its own $1 coin. For paper money, only the US Dollar is used (there are no paper Balboas).
It's so that Panama can benefit from the stability of the US dollar, as the backbone of the global financial system. For instance, this means that Panama doesn't have to worry about out-of-control inflation, as a result of changing exchange rates. This hence makes Panama a more attractive investment and tourism destination.