Historical Sketch

The island of Timor has been recorded by Chinese traders in the 14th century, and the Portuguese Navigator Ferdinand Magellan visited the island on his first voyage. The Portuguese were the first Europeans to lay a claim in the early 16th century, soon to be followed by the Dutch East India Company. In 1661, a treaty between the two European powers established the partition of Timor that has remained until today. While the western part got integrated into Dutch East Indies, today's Indonesia, Portugal administered the eastern part out of Goa or Macau. Only in 1896, Portuguese Timor became a separate colony, restyled into an overseas province in 1951. During World War II, East Timor was invaded by Japan together with the rest of Netherland East Indies. After the Portuguese revolution of 1974, Portugal withdrew and effectively abandoned the island at short notice. The consequence was a civil war between promoters of an adhesion to Indonesia and of independence. In November 1975, the People's Republic of East Timor was proclaimed unilaterally, immediately followed by an Indonesian invasion. In July 1976, East Timor was annexed as an Indonesian province. In the 1990s, the civil war broke out again, ultimately forcing Indonesia to withdraw. In October 1999, an interim administration by the United Nations got established to organize the transition. In May 2002, Timor-Leste finally attained independence.

Monetary History Overview

Portugal did not introduce a distinct monetary order in Timor before the 20th century. The Spanish Dollar had entered the colony through foreign trade and became widely used in payments, although accounting was done in Portuguese units. Dutch trade coins and money from the Netherlands East Indies were also accepted in commerce. The Portuguese currency reform of 1911 was not applied to Timor, the Spanish Dollar was transformed into a colonial currency, instead. The Portuguese National Overseas Bank was supposed to begin operations in 1902, but the opening of a local branch was delayed until April 1912, money issuance began in 1915 (using older banknotes dated 1910). The banknotes were denominated in Timorese Pataca, a commonly used name of the Spanish Dollar, originating from Arabic. The formal creation of the Timorese currency unit, however, came only with the currency ordinance of May 1918. Initially the Timorese Pataca was equal to the Macau Pataca, both being based on the Spanish Dollar. In the 1930s, when China abandoned the silver standard, the Timorese Pataca repegged to the Portuguese Escudo at the same value as the Portuguese Indian Rupee, while the Macau Pataca repegged to the Hong Kong Dollar. During Japanese occupation, the Portuguese currency was abolished, and the Japanese military currency got introduced as in all the conquered territories. The Military Yen and the Pataca were set equal, which corresponded more or less to the pre-war valuation. The Portuguese colonial rule including currency was restored after the Japanese defeat. The peg to the Portuguese Escudo was slightly adjusted in 1946, and in 1953, Portugal passed a new constitution for its overseas territories which prescribed the unification of the colonial currencies (except for India). Hence in January 1960, the Timorese Escudo was introduced on par with the metropolitan currency. It remained unchanged until its abolition after the annexation of East Timor by Indonesia in May 1976. The UN-led transitional administration, that took over affairs after the Indonesian withdrawal mid-1999, decided to adopt the United States Dollar instead of a national currency. The national government confirmed the decision after independence in mid-2002. To facilitate transactions, local subsidiary coins are issued since 2003 for circulation alongside the US banknotes. The financial supervision authority established during UN administration was replaced by the central bank in 2011.

Timor-Leste joined the International Monetary Fund (IMF) on 23.07.2002.

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