Macau’s Pataca To Remain Pegged to US Dollar

Written on January 4, 2008 by Macau

We think this may have a lot to do with the heavy billions of USD casino investments in Macau!

Despite rising inflation and a weakening US dollar, the value of the pataca(8 Patacas = 1USD) will continue to remain indirectly tied to the once dominant American currency, the chairman of the Monetary Authority of Macao said yesterday.

Since 2004, prices in Macau have continued to rise. Last year inflation ran at 5.2 percent, and in November last year, the most recent figures available, it hit 5.36 percent.

With Macau continuing to import more products than it sells overseas, a fall in the value of the currency will result in less buying power for local companies and consumers. In other words, higher prices.

For example the cost of pre-packaged rice from Thailand has increased by 44 avos (1 pataca can be divided into 100 avos) in the last year, to 6.84 patacas per kilo, according to the Statistics and Census Service price survey.

The trade deficit continues to grow each month and in the last quarter blew out to more than six billion patacas.

Currently the value of the pataca is tied directly to the Hong Kong dollar. The government has fixed the value at one Hong Kong dollar plus a three percent premium. Therefore one Hong Kong dollar will always be worth 1.03 patacas.

In turn, the Hong Kong currency is tied to the US dollar at a rate between HKD7.75 to 7.85. The indirect link sees a drop in the value of the US dollar automatically flow through to the pataca. In the last year the US dollar lost ground to currencies such as the mainland’s renminbi, the Japanese yen and the Euro.

A revaluation of the pataca upwards would see the price of imported products fall. However such a move would also make products sold by local companies relatively more expensive for overseas buyers, making them less attractive on the world market.

Questioned about the possibility of a change in the valuation of the currency, Anselmo Teng, chairman of the Monetary Authority of Macao said it was unlikely the current system would be altered.

“This system has been very successful over the last 20 years and it is here to stay,” he said.

However Mr Teng suggested that the subject is currently very topical and therefore declined to go into detail about any options that the government maybe considering.

“This is a very sensitive subject so it does not pay to discuss it so freely out in the open like this,” he told media at the conclusion of the Bank of China mobile banking launch.

Against the Euro the pataca has fallen in value from 94 Euro cents in January of last year to 84 Euro cents as of yesterday.

The situation is similar when analysed against the mainland’s renminbi. Halfway through 2005 the two currencies were approximately of equal value, however over the last three years the pataca has fallen to .91 Chinese yuan.