A Panama plan entails using another country’s currency without forming a currency union with common fiscal aims.
Panama plan is a term coined by Alistair Darling, former UK chancellor and leader of the pro-union Better Together campaign, which was set up prior to the Scottish referendum on whether it should break away from the rest of the United Kingdom, to lobby against Scottish independence.
Mr Darling used the phrase “Panama plan” in February 2014 in response to the assertion by Alex Salmond, Scotland’s first minister that an independent Scotland could continue to use the pound even if Westminster refused to enter a currency union.
Mr Darling responded by saying that the proposal sounded like a “Panama Plan”, requiring Scotland to generate a permanent balance of payments surplus to ensure it had enough money to pay its way, with interest rates set by “a foreign country”.
A letter writer to the FT pointed out that the phrase “Panama plan” could have a double meaning. The failure of an attempt to build a Scottish colony, the Darien scheme, is often cited as a precipitating factor for the 1707 Act of Union which saw Scotland’s political union with England. The Darien scheme was located on the isthmus of Panama.