Macau Yearbook 2013 - Macao Yearbook

EconomyMonetary PolicyCapital flows freely and currencies are freely convertible in Macao. The Government’s currencypolicies are to defend Macao’s currency and maintain its foreign exchange stability. The two policytools used to achieve these objectives are the deposit reserve and monetary bills. The deposit reserveratio is three percent for current savings, two percent for time deposits of less than three months, andone percent for time deposits of over three months. Monetary bills are a short-term money markettool issued by the Monetary Authority; and they are used to adjust the liquid capital of patacas inthe financial system. The interest rate usually remains competitive with interbank offer rates inHong Kong. In addition, the Monetary Authority of Macao adjusts liquidity in the money marketvia repurchase agreements and currency exchange contracts with the banks.The PatacaThe pataca has been the legal tender of Macao for more than a century. As early as 1905, the formerPortuguese administration authorised the Banco Nacional Ultramarino (BNU) to issue pataca notes.The first pataca notes were issued on 27 January of the following year. At that time, the Mexicaneight reales silver coin, called Pataca Mexicana in Portuguese, was very popular in Asia, and thepataca was named after it.In 1980, the former Portuguese administration set up the Issuing Institute of Macau (InstitutoEmissor de Macau), which was given the monopoly right to issue pataca notes. Since then, theBanco Nacional Ultramarino has continued to issue banknotes, but has acted only as the agent ofthe Issuing Institute of Macau. On 1 July 1989, the Monetary and Foreign Exchange Authority ofMacau was created. The Government redeemed the right to issue patacas, but the Banco NacionalUltramarino remained the agent bank for issuing notes. In October 1995, the Bank of China (BOC)became the second agent bank for note issuing. Although more than one bank is now authorised toissue notes in Macao, overall power to issue currency is retained by the Government.Under the currency board system, all the patacas issued must be 100-percent-backed by foreignexchange reserves. As legal backing for the notes they issue, the agent banks for note-issuing arerequired to pay an equivalent amount in Hong Kong dollars to the Monetary Authority of Macao;in exchange they receive a Zero-Percent Certificate of Indebtedness at a fixed exchange rate of oneHong Kong dollar to 1.03 patacas. The 100-percent reserve backing system enables the MonetaryAuthority to ensure the full convertibility of the pataca into its reserve currency – the Hong Kongdollar – thus establishing the linked exchange rate relationship between the pataca and the HongKong dollar. As the Hong Kong dollar is pegged to the US dollar, the pataca is indirectly peggedto the US dollar at an exchange rate of one US dollar to about eight patacas.The Government’s policy is to support the circulation and use of the pataca without rejecting thecirculation and use of other currencies. Decree-Law No. 16/95/M, Circulation of Local Currency– Mandatory Use of the Pataca, requires that any goods sold and services offered in local businesstransactions must be clearly priced in patacas; and they can also be simultaneously priced in oneor more other currencies. Under the decree-law, regardless of the nature and objectives of the debtsand transactions, no reasons or excuses can be used to decline settlement using the pataca.173