Strong currency eases city’s inflation while driving away visitors

European tourists might have noticed that their wallets shrank by 30 percent when visiting Macau comparing to a year ago. The same has happened for British and Japanese visitors, who are paying 14 and 20 percent more respectively while holidaying in this booming tourism destination.
The costs might go even higher in June if the American Federal Reserve rises interest rates, as the pataca will increase further in value following the rising dollar it’s indirectly pegged to.
Comparing to the Euro or Pound, Chinese visitors’ RMB only suffered a mild drop against the pataca. However, if the exchange rate is to rise further, those Chinese visitors – who make up nearly 70 percent of the city’s tourist arrivals – may be dissuaded from visiting Macau.
“The Chinese yuan only fell 3 percent against the USD in the past six months; if it were to fall 10 percent or 20 percent from where they stood six months ago, that would generate problems for Chinese tourists who want to come to Macau.  It’s a real danger of loss of visitors,” said Rodney Bruce Hall, professor of international relations at the University of Macau.
The scholar believes it’s possible for the “bad news” to affect Macau’s visitor turnout, thereby hurting the city’s employment in the long run. “The American economy is really quite strong, the Chinese economy is weakening. So it’s highly likely the dollar’s going to continue rise against the RMB unless the Chinese intervene,” he explained to the Times.
“Meanwhile, if we don’t get the high-roller visitors back at some point, it’s going to continue to be a strong headwind to Macau’s economy as well. (…) It could hurt employment if the visitors quit coming and people dealing baccarat lose their jobs,” he added.
To cope with the possible trend, the scholar suggested the government develop policies to boost low budget entertainment and low-cost accommodation.
But as a city living largely on Chinese tourists as well as on imports from the mainland, a stronger pataca is not all a bad news to Macau. “Macau suffers lower inflation than it would otherwise,” said the scholar.
Not only can the city buy its daily necessities and imports from the mianland and European suppliers at cheaper prices, its citizens can spend less when travelling to European and other destinations.
Moreover, the rising dollar can deflate Macau’s real estate bubble, as the territory will increase its inrestst rates following US monetary policy.
“Now it’s much better the US dollar going up than going down,” assessed Macau-based economist Albano Martins. “The supply of money into the market will be restrained, which will ease the pressure over the real estate market.”
Nevertheless, the economist indicated the benefits from a rising USD to Macau are only “by chance”, as the two economies happen to both be in a rising cycle at the moment.
“Because of the peg to the USD, when the US makes its [monetary] policy, we have to follow the US policy. But during the majority of the time, they were in different cycles of economy,” he stressed.
“Many people forget that in the past when we had a recession in 1996 to 2000, the US economy was growing. They tightened the currency by pushing up the interest rates, but what we needed was to release the currency,” explained the economist.
Mr Martins suggested that the pataca peg to the USD through the HKD no longer makes much sense, as Macau’s economy has less and less to do with the US but is rather largely linked to the Chinese economy.
“When the RMB is freely convertible, it’s good sense that we should link to the yuan rather than USD. Maybe in ten years, both HKD and MOP would switch their peg to RMB, that’s my prediction,” he added.