Among all the countries in Southeast Asia, only one uses the United States dollar as its official currency: Timor-Leste.
While other nations in the region have their own currencies or versions of the dollar, Timor-Leste stands out by fully adopting the US dollar in all its official transactions.
For many, this fact often goes unnoticed. But it holds deeper significance, both in terms of Timor-Leste’s history and its vision for stability in the post-independence era.
The Road to Dollarization
The decision to adopt the US dollar was not made lightly. It was implemented in the aftermath of a turbulent chapter in Timor-Leste’s history. Following the 1999 referendum that led to independence from Indonesia, the country faced the massive task of rebuilding its institutions and economy from scratch.
On January 24, 2000, the United Nations Transitional Administration in East Timor (UNTAET) issued Regulation 2000/7.
As reported by UN Peacekeeping, this regulation mandated that all official transactions be carried out in US dollars. The rationale was simple yet strategic: the dollar was seen as a stable, internationally accepted currency that could foster trust and economic recovery.
At the time, other currencies were still circulating, including the Indonesian rupiah, Thai baht, Portuguese escudo, and Australian dollar.
However, the National Consultative Council (NCC), working with UNTAET, endorsed the US dollar as the most viable and practical choice for a newly forming nation.
A Central Bank Without a Currency
Timor-Leste may not issue its own currency, but since September 2011, it has had a fully functioning central bank: Banco Central de Timor-Leste (BCTL). The bank was officially established through Law No. 5/2011 and took over the responsibilities previously handled by transitional financial institutions set up under UN oversight.
BCTL is responsible for maintaining financial stability, supervising the banking sector, managing foreign reserves, and guiding monetary and fiscal coordination, all within the framework of a dollarized economy. While it does not print its own money, it plays a vital role in ensuring financial discipline and macroeconomic resilience.
BCTL is responsible for maintaining financial stability, supervising banks, managing reserves, and supporting government fiscal policies. However, it does all of this without printing a national currency. The institution works within the framework of the US dollar system, ensuring that monetary conditions remain favorable and well-regulated.
This arrangement means Timor-Leste must import its physical currency, manage foreign reserves carefully, and maintain confidence in a currency it cannot directly control. While it removes the risk of inflation caused by excessive printing, it also limits the government’s ability to adjust monetary policy during times of global financial fluctuation.
Despite these limitations, the use of the US dollar has provided a level of macroeconomic predictability. Inflation has generally remained low, and public trust in the currency remains high. However, the arrangement also means that Timor-Leste’s economy is more exposed to shifts in US monetary policy.
Not All Dollars Are the Same
When we talk about dollars in Southeast Asia, it’s important to make a distinction. Singapore and Brunei Darussalam also use a currency called the dollar, the Singapore dollar (SGD) and the Brunei dollar (BND) respectively. But these are their own sovereign currencies, managed by their national monetary authorities.
Interestingly, Singapore and Brunei have a Currency Interchangeability Agreement, which allows both dollars to be used interchangeably in either country at a 1:1 exchange rate. This is a symbol of mutual trust and economic cooperation between the two nations.
Timor-Leste, on the other hand, uses the actual US dollar, not a localized version. It has no fixed monetary agreement with the United States and must work within the global dynamics of the USD.
What This Means for Timor-Leste’s Future
More than two decades since dollarization, Timor-Leste continues to rely on the US dollar. For a small economy with a history of political instability, the dollar has brought an anchor of certainty. However, it also means the country’s monetary flexibility remains limited.
There have been discussions about creating a national currency in the future, especially as Timor-Leste seeks greater integration into ASEAN. But any shift would require building the infrastructure and trust needed to support a sovereign currency, a complex and long-term process.
For now, the US dollar remains not only a medium of exchange but also a symbol of stability and global connection. And while it sets Timor-Leste apart from its neighbors, it also reflects the country’s pragmatic approach to nation-building.
