Hong Kong and Macau have been designated as trial markets for China to introduce a digital version of the renminbi.
An electronic version of the RMB, or yuan, as it’s popularly known, is rapidly developing as a key component of the central government’s determination to track and control the flow of capital out of the country.
Beijing is determined to rein in capital flight, a chronic problem which the government has identified as an economic and national security risk.
Gambling has been identified as one of the major causes. Around 1 trillion yuan (US$155 billion) is estimated to leave the country every year, headed for overseas gambling destinations.
While Macau, as part of China, is not believed to be in the crosshairs, it is the only place in the country where casinos are legal, and as the prime destination for wealthy Chinese gamblers it’s long been identified as a pipeline for capital escaping the country illegally through junket promoters and underground banking networks.
“Combating Cross-Border Gambling” was the theme of a recent meeting hosted by Minister of Public Security Zhao Ke Zhi where plans were outlined to enlist other countries in the region in the effort and to expand a “blacklist” of foreign gaming jurisdictions𑁋Cambodia, Vietnam and the Philippines believed to be among them𑁋declared off-limits to Chinese nationals.
Authorities also plan to root out online payment platforms linked to gambling as well as companies offering internet services that can be traced to online gambling sites.
The overall aim, Zhou said, is “to crack down on any illegal fund-raising network for gambling in our territory, and to resolutely cut off the gambling-related capital chain, technology chain, promotion channel and gamblers’ flows.”
“We must strictly punish and prevent the soil of cross-border gambling, using the highest and heaviest penalties to achieve the strongest legal deterrence,” he stated. “We must create a strong atmosphere of rejecting gambling.”
To further these efforts the country’s criminal statutes were amended last year with provisions making it illegal to set up or manage casinos overseas or to solicit Chinese citizens to gamble.
In large part it’s for these reasons that the digital yuan is likely to arrive in Macau “sooner than most people expect,” according to Macau-based gaming industry consultant Ben Lee.
“Macau has been an issue as a leakage for China’s economy,” he told Macau News Agency. “Chinese authorities have tried to control hundreds of thousands, perhaps millions, of small transactions, either cash being carried over or channeled through underground channels to Hong Kong and Macau. Once that cash is in Macau in (Hong Kong dollars), it is repatriated or taken overseas fairly easily.
“The digital RMB would solve that problem by allowing them to effectively track the transfer of funds from the mainland to Macau. Casinos would have their revenue in RMB, but in order to repatriate any funds, they would have to apply to (China’s central bank) to convert them into US dollars or euros. It removes the need for mainland authorities to monitor all smaller transactions. They would only need to control the larger players, the banks and casinos.”
On the plus side, it could also promote the growth of more profitable wagering at the mass-market level by removing the barriers that prevent mainland players from spending their money in Macau. With the RMB as legal tender they would be able to buy chips instantly without the need to convert to Hong Kong dollars, the casinos’ existing currency. It’s likely to curtail junket activities at the high end, but in turn it will allow casino operators to enjoy more direct relationships with their players.
“At the end of the day,” Lee said, “it will finally open up the mass market to Macau, but at the same time the VIP market will contract as it has already.”
