A nation wealthy in history, East Timor has a novel relationship with its currency. After separating from Indonesia in 1999, the country decided to adopt the US dollar (USD) as its official currency. East Timor is one among the few countries that has not introduced its own currency. But what made Timor-Leste select USD as its currency and what were the explanations for this decision?
According to the United Nations Peacekeeping Missions website, the US dollar was officially adopted in East Timor in 2000 with the issuance of Regulation 2000/7 on January 24, 2000. This regulation required all official transactions to be conducted in USD. Nevertheless, the population could still use other currencies that were also in circulation, corresponding to the Indonesian rupiah, Thai baht, Portuguese escudo and Australian dollar.
At the time, the United Nations Transitional Administration in East Timor (UNTAET) and the East Timorese Transitional Government argued that the US dollar was chosen since it was a stable and powerful currency widely accepted all over the world. This decision was later ratified by the National Consultative Council (NCC).
Initially, the adoption of the dollar caused some confusion amongst the general public. This was on account of the incontrovertible fact that the worth of the dollar was much higher than the usual prices of products and services on this former Portuguese colony. The adoption of USD because the official currency resulted in a rapid rapid increase in commodity prices. The Timor-Leste government, nonetheless, remained firm in its position, insisting that using the dollar had no impact on prices; slightly, residents were answerable for adapting through the quantity of products or services they consumed.
The Timor-Leste government argued that the value increases throughout the transition period weren’t the results of using USD, but slightly a consequence of market principles (supply and demand). The decision to adopt the dollar was made by the United Nations and the federal government of East Timor to save lots of the nation from political and economic instability. The adoption made it easier for foreign investors to trade and conduct business within the country. American tourists only needed to bring their money to East Timor and will spend it as they pleased.
Additionally, in 2003, in coin transactions, there was a currency called Centavo, which was produced and shipped directly from Portugal. In contrast, the US dollar was supplied directly by the US Federal Reserve (Fed) starting in 2000.
Both the United Nations and the transitional government claimed that the US dollar would only be used for 2 to 3 years after independence from Indonesia. However, in practice this principle still applies today. East Timor still uses the US dollar as its official currency. The Indonesian rupiah remains to be widely used, especially within the regions bordering East Nusa Tenggara (NTT). In rural areas, some East Timorese still engage in barter trading.
While theoretically using the dollar may gain advantage Timor-Leste, the economic situation within the country stays unstable. Commodity prices are relatively higher than when it was Indonesia’s twenty seventh province. High prices in East Timor are partly the results of the political and economic turmoil following independence 24 years ago. East Timor continues to struggle with poverty and an unstable economy. In other words, developing its own currency will not be currently the federal government’s top priority.
