Timor-Leste uses two currencies from two different continents for its daily transactions. All banknotes circulating in the country are official US Dollars from the United States, while all coins used are Centavos minted in Lisbon, Portugal.
Timor-Leste remains the only one in Southeast Asia without its own national banknotes. Its unique monetary policy was chosen due to emergency post-crisis decisions and state budget efficiency.
Halting Hyperinflation in Dili's Markets
The Indonesian Rupiah was the legal tender before 1999 because Timor-Leste was still the 27th province of Indonesia.
The 1997 Asian Financial Crisis had previously destroyed the Rupiah's exchange rate from Rp2,500 to Rp16,800 per US Dollar. The Indonesian Rupiah lost more than 80 percent of its value within months in the domestic market.
In the midst of this Rupiah currency crisis, Timor-Leste separated from Indonesia based on the August 30, 1999 Referendum.
As a newly born country, Timor-Leste did not yet have its own national currency or an established financial system to handle the economic transition.
The public market became chaotic because the remaining Rupiah held by citizens drastically lost its value without any official financial institution.
People eventually transacted using any available currencies, ranging from Rupiah, Australian Dollars, to Portuguese Escudos.
The Head of the United Nations Transitional Administration in East Timor (UNTAET) issued a decree on January 24, 2000 to deal with the economic transition.
Regulation No. 2000/7 established the US Dollar as the official currency to stop exchange rate speculation in the market. The UN chose the Dollar due to its position as a global currency and the practicality of not needing to print a new currency from scratch.
The US government began sending regular shipments of physical US Dollar cash to Dili in 2000 under UN coordination.
The process of phasing out the Rupiah was done gradually by opening official currency exchange posts in markets to withdraw the remaining Rupiah from the public.
The Small Changes Bottleneck
The use of the US Dollar in Timor-Leste created a scale mismatch in daily retail commerce. The smallest paper denomination was the one-dollar bill. It was simply too high for basic local transactions, such as buying a bundle of vegetables or a cup of coffee.
Markets stalled because sellers could not provide change for amounts below one dollar.
Since importing physical cents from the United States was logistically impractical, the Banco Central de Timor-Leste officially introduced Centavos coins in 2003 to bridge the change gap.
The value of 100 Centavos is pegged exactly equal to one US Dollar to simplify trading conversions.
The use of foreign US Dollar banknotes and local Centavos coins simultaneously resolved money circulation bottlenecks without disrupting the primary dollarization policy.
A Cost-Effective Decision
The government of Timor-Leste chose not to establish its own coin minting facility within the country.
Building a coin-minting infrastructure with high-security standards requires massive initial capital, and Timor-Leste's small population scale makes investing in independent machinery inefficient for the state budget.
Hence, the Centavo production process is fully delegated to Portugal's state-owned mint, Imprensa Nacional-Casa da Moeda (INCM).
Portugal was selected because INCM is a state enterprise that already holds international security printing certifications. The historical ties with Lisbon were utilized to ease government-to-government agreements without involving private brokers.
Centavos coins are still designed to highlight Timor-Leste's national identity despite being minted in Europe. The visuals on the metallic surfaces feature local natural wealth such as corn crops, water buffaloes, traditional boats, and coffee plants as the primary commodities.
