Digital RMB would remove Macau as a ‘blackhole’ for the Chinese economy – Analyst

The introduction of the digital RMB in the Macau SAR would allow Chinese central authorities to ‘plug’ a ‘blackhole’ that could have taken almost US$600 billion out of the country’s economy, a gaming consultant posited.

Speaking in a talk held by Britcham Macao today (Tuesday), gaming consultant and managing partner of IGamix, Ben Lee, estimated the real volume of that could have been directed to the local gaming sector in previous years.

“In 2013 Macau’s gross gaming revenue peaked at US$45 billion. It’s a pretty high amount but that’s the amount of money that was retained by the gaming industry, not the amount of cash that flowed to Macau casinos,” Lee indicated.

“We have a different metric in casinos called the ‘hold rate’. Basically, if you walk into a casino with US$100 in your pocket and you intend of gambling. With a hold rate of 20 per cent, the casino will statistically retain US$20 out of the US$100 that you brought into the casino.

Therefore the consultant considered that for the SAR to have reported US$45 billion in gaming revenue in 2013, gamblers would have to bring the equivalent to US$235 billion to the city, a number that could get as high as US$600 billion if one was to add side-betting as a multiplier in the equation.

“That number could represent US$600 billion coming out of the Chinese economy. That is why China has been very unhappy with our gaming industry,” Lee considered.

Last year the director-general of China’s Ministry of Public Security International Cooperation Department, Liao Jinrong, has stated that about RMB1 trillion (US$145.5 billion) in funds flows out of China into gambling activities every year, underlining the issue as a “threat to the country’s economy and national security”.

For Lee by introducing just by replacing the HKD with the digital RMB as the main legal tender for use in casinos, central authorities would then be allowed to “monitor the hundreds of millions of cross border illegal currency conversions” used to ferry money out of the country.

As of August the share represented by the HKD in the local money supply was 50.0 per cent, with the MOP, RMB and USD representing 35.3 per cent, 5.9 per cent and 7.2 per cent, respectively.

“Suddenly there would be an intrinsic built-in function that enables authorities to monitor, control and filter theoretically any and all transactions,” he added.

This change would also come at the cost of further shrinking the current VIP sector, apart from those players that would not mind having authorities knowing their gambling transactions.

The consultant revealed that he knew of “at least one gaming operator” that has already conducted an organizational-wide study into the potential impact of introducing the RMB or digital RMB in their operations should it be introduced.

However, at the same time, integrating the SAR into a single currency market would greatly increase the pool of mass-market clients not just for the local gaming sector, but for the whole economy.

“You can just look at Hainan, where the number of duty-free sales is just astronomical. The ability to have mainland Chinese freely access their money without conversion […] would be the biggest incentive for more visitors to come”

Other advantages for local residents would include the absence of bank or merchant handling fees and a reduction in the inflation effects in the SAR.

Digital renminbi or Digital Currency Electronic Payment (DCEP) is a central bank digital currency issued by China’s central bank, the People’s Bank of China, which has been under trial around the country since 2019.

Lee estimated the currency could be introduced into the local market in roughly three years but mentioned that the Monetary Authority of Macau (AMCM) allegedly already has a plan in place for its roll-out, and was it to advance with it it could do so “in just three months”.

This year Chief Executive Ho Iat Seng announced that local monetary authorities would be evaluating the possibility of advancing legislation that could allow for a centralised digital yuan to be used in the SAR.

For Lee the digital RMB roll-out in Macau could proceed in two phases, one where the DCEP would be issued by the country’s central bank with local Chinese banks allowing in retail, but with physical RMB first replacing the HKD as the legal tender in casinos.

“Then in phase two, they will advance with the full DCEP roll-out. We can see it being accepted in a casino environment, with the HKD in the general community to be likely phased out and local banks will be permitted to clear the RMB into international currency thus fulfilling our position as an international RMB clearing platform”