There’s no timeline yet for China’s renminbi to become legal tender in Macau. But analysts studying the prospective benefits like what they see.
The People’s Bank of China is rolling out a digital version of the yuan, as it’s popularly known, on a trial basis in several cities. Shenzhen, the metropolis of 12.5 million that lies on the Hong Kong border, is one of them.
The Monetary Authority of Macao has taken note, and in its role as de facto central bank for the territory, it’s been monitoring other jurisdictions where similar state-backed digital currencies are under consideration. The effects of the Covid crisis in bringing to light the “deficiencies of the current cash payment system” have spurred its interest, the agency said recently.
It’s also been reported that discussions are under way between the government and Macau’s casino operators about the feasibility of introducing the digital yuan to their gaming floors.
Reducing Reliance on Junkets
It is here, of course, where the ability to transact business in a single currency becomes a game-changer, not only for Macau’s principal industry, but for the territory’s tourism-driven economy as a whole.
“E-yuan could boost casino operators’ profitability by converting VIP gaming demand into premium mass,” said Angela Han Lee, a Hong Kong-based analyst for Bloomberg Intelligence, in a response to an inquiry from GGB News.
“Easing cross-border money transfers could encourage VIP patrons, mostly businessmen in private sectors, to opt for e-yuan to buy chips in Macau, reducing their reliance on junket operators for transferring money from onshore.”
She added, “This could convert VIP players into premium mass players, encouraged by the higher level of services from casinos without extra cost.”
Given the higher profit margins accrued from mass play, and assuming a conversion rate of VIP to premium-mass of 20 percent, Macau’s casinos could see a 10 percent increase in EBITDA, she said.
In China, as in the rest of the world, digital wallet payments are nothing new. Led by Ant’s Alipay and Tencent’s WeChat Pay, they handle trillions of dollars in transactions annually.
Challenging the Dollar
The central government is bent on stemming capital flight caused in large part by gambling. The digital yuan makes it possible to track and control where the renminbi moves and how. In that way, it would help secure its value and its reach through measures that would aid the government in stemming capital flight. It would enable authorities to clamp down on the country’s vast shadow banking networks, junkets among them, and combat money laundering and other financial crimes.
Ultimately, it would give Beijing a way to challenge the dominance of the dollar in the global economy.
Which is where Macau figures in. The territory swings in the ebb and flow of Beijing’s longstanding frustration with the problem of illegal currency outflows. They’re perceived as such a national security risk that the central government is reported to be compiling a blacklist of foreign gambling jurisdictions from which its citizens will be banned.
But it’s a problem with no easy solution, in large part because Beijing has an obvious interest in a flourishing Macau economy, which is almost entirely dependent on China’s passion for gambling. There is also the problem that a lot of that gambling, maybe as much as two or three times’ official revenues, is conducted in ways that evade official accounting. To try to rein this in across three currencies, renminbi, Hong Kong dollars and Macau, is no simple matter.
“China has to monitor all this leakage of renminbi, primarily to Hong Kong dollars,” as Macau-based gaming industry consultant Ben Lee explained in a recent interview with news site Asia Gaming Brief. “But if Macau becomes a single-currency jurisdiction with China, the need to monitor and control the leakage will be uplifted from the bottom level to the corporate level. Now, the casinos are making their profits in renminbi, so they have to apply to the central authorities to convert the renminbi into foreign currency to repatriate it.”
The Case for a Single Currency
VIP is receding as a factor in the market anyway, declining in revenue terms by more than 18 percent in 2019, when it fell to less than half of total gaming revenues for the first time in years.
“We expect VIP to still be below 2019 levels by 2025,” a trio of analysts with brokerage Sanford Bernstein said in a client note earlier this year. “VIP is likely to continue to be negatively impacted by scrutiny around money transfers and customer and agent concerns about dealing with junkets.”
Lee believes junkets would still have an important role to play through their ability to recruit players on the mainland, where the promotion of gambling is prohibited by law, and to provide them with credit—a key function in a country where gambling debts are not legally enforceable.
The bottom line, though, is they will have little choice in the face of the larger geopolitical aims that Beijing harbors for the Greater Bay Area𑁋 Macau, Hong Kong and their close-in markets on the mainland𑁋a big part of this rests with the desire to see Macau graduate into a true pan-Asian destination. A single currency would certainly facilitate this.
As Bloomberg’s Angela Lee told GGB News, “E-yuan, once rolled out in Macau, may help support local tourism by strengthening the enclave’s ties to the mainland. (It) could boost mainland leisure travelers’ spending by increasing their length of stay due to easier payment options. Also, the e-yuan doesn’t require offshore users to own an onshore bank account, making it easier for Macau and Hong Kong retailers to settle payments.”
The more ambitious part of this—the truly transformational part—is about currency unification knitting Macau, Hong Kong and their neighboring centers of industry and population on the mainland into a south China economic and financial powerhouse of global significance, encompassing international tourism and a lot else besides.
“Clearly, there’s a case for the evolution of the industry, from a wider perspective,” Truist Securities analyst Barry Jonas told GGB News. “I think it’s clear this is where we’re headed, not just in gaming but in our everyday lives.”
