High liquidity in Central American banks hinders monetary policy and market development.
Banks in Central America hold more money than they need, which can be good for stability but bad for the economy. A study looked at 100 banks and found that bigger, more profitable banks with more money and better financial systems tend to keep more cash on hand. When people use more dollars in their bank accounts, banks also keep more cash. To fix this, better rules and encouraging people to use local money could help make the financial system work better in Central America.