Macao: Money and Reform


This paper analyzes both the feasibility and necessity for a shift in Macao's currency anchor from the HKD to the RMB. This monetary reform, made possible by Macao's deeper economic integration with Mainland China than with Hong Kong, is required urgently to recover the SAR's lost monetary stability and to minimize the unfavorable effect of RMB appreciation on its welfare. Having already suffered a significant loss from depressed terms of trade and depreciated financial wealth under the rapid RMB appreciation, which is driven by long-term international economic imblaances, Macao must take the proposed reform seriously in order to avoid presistent, larger losses in real income and to curb worsening monetary instability (i.e., a painful freefall in the internal and external values of domestic currency).


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