Macao initially had its currency fixed to that of its colonial master, Portugal, but the sharp devaluation of the escudo in 1977 led to the adoption of a currency board on the Hong Kong dollar. This has been maintained ever since, before and after Macao became a special administrative region of China in 1999, with conservative fiscal policies, no discretionary monetary policy, and more recently some macroprudential policy.

YearsTargets and attainmentClassification
1974-76Portuguese colony, with its currency, pataca, issued (only against foreign currency) by Portuguese-owned Banco Nacional Ultramarino (BNU) and pegged to Portuguese escudo; range of banks, mostly foreign-ownedpure exchange rate fix PERF
1977-2017sharp devaluation of escudo in 1977 leads to peg being switched to Hong Kong dollar (HKD) which was then floating, under standard currency board arrangement, with minor parity changes 1977-83; 1980 Issuing Institute of Macau (IEM) set up under Portuguese-administered government, BNU acts as its agent; 1983 speculative attack on HKD leads to HKD being pegged on currency board basis to USD, so pataca now pegged indirectly to USD; 1989 IEM transformed into Monetary and Foreign Exchange Authority of Macau (AMCM); 1993 government requires all goods prices to be listed in patacas, but does not discourage existing widespread use of HKD (more than half of broad money); from 1995, Bank of China local branch also issues pataca; over 1990s economy becomes dominated by gambling tourism, from Hong Kong and Mainland; as of 1999 role of monetary policy limited by currency board arrangement, capital openness and dominance of HKD in broad money, with instruments limited to reserve requirements (low and stable, prudential rather than monetary) and bills issued by AMCM to absorb and control liquidity; small interbank money market, no government debt so no government debt markets; no discretionary monetary policy, interest rates follow Hong Kong rates closely, AMCM focused on bank supervision; 1999 Macau becomes special administrative region of China but keeps existing currency arrangement; conservative fiscal policies maintained, but temporary relaxation in response to slowdown 2014-6 from fall in gambling tourism and correction to post-GFC house-price boom; post-GFC some development of macroprudential policies focused on property prices;pure currency board PCB

Selected IMF references: RED 1999 pp17-25, 62; SR 1999 pp11-12; [Note: no Article IV consultations from 2000 to 2013] SR 2014 pp11, 18; SR 2017 pp4-5, 8-9, 13-14, 33; SR 2019 pp12-15, 45-9.

Other references: Braga de Macedo et al. (2006); Haney Scott (1997); Pao (2003).

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