Macau Plans to Legalize Digital Currency. Here’s how it might affect the casino industry

Macau is a special administrative region in the PRC.
A draft law legalizing digital currency was submitted to the legislative council.
The law could change the casino industry dramatically – benefitting China.

The Macau government’s Executive Council has published a draft legislation that legalizes Digital Currency. Details regarding cryptocurrencies selected for circulation and any future dates have not been provided.

The Executive Council is the core policy making body which advises the Chief Executive of Macau.

The draft called “Legal Regime for the Establishment and Issuance of Currency” legalizes digital currency. It was submitted to the legislative assembly for further discussion on October 14th. It is not clear whether casinos will be able to use digital currency.

Digital currency in the casino business would mean increased and effective government monitoring of transactions.

Macau is one of the two special administrative regions (SARs) in the People’s Republic of China. Hong Kong is the other SAR. Their special status implies the existence of distinct and independent political, judicial, financial and legal systems in the regions. However, China controls the foreign affairs and defense of these regions.

Unlike Hong Kong which is fighting for independence from China, Macau accepts Chinese suzerainty. It is a no-brainer that Macau will legalize Chinese renminbi and in the process, grant the Chinese government the power to monitor all transactions and regulate the industry.

Chinese funds and Macau’s casinos

Gambling generates a significant portion of Macau’s income and employment – over 50% of its GDP and almost a fifth of its jobs. Because of the booming casino business, it is known as the Las Vegas of the East. Macau surpassed Las Vegas in casino revenue back in 2013.

Since gambling is illegal in China, Chinese play via ‘junkets.’ These are organizations that offer lines of credit to ‘high rollers’ or wealthy individuals. It is via these junkets that Chinese VIPs stake big money into Macau’s casinos. Junkets source money from underground lending networks in China – a legal gray area. Reuters reported that the VIP junket sector raked 50% of overall revenues in 2019.

However, in June 2020, China flagged the outflow of money for gambling as national risk. Since then, hundreds of high-rollers have stopped going to junkets.

How will digital currency change things?

There are two main benefits of legalizing digital currency in Macau. One, If the Chinese digital renminbi is adopted by the special region as a consequence of the new law, then Chinese customers do not have to exchange Yuan for Hong Kong Dollar or Macanese Pataca. Also, cash maintenance and time costs would be significantly reduced if players could skip using chips and cash.

Two, Chinese authorities will have complete information about transaction volume and account holders.

According to long time casino industry participant Lam Kai, if digital currencies are allowed in casinos, transactions between players and the casinos would become transparent which would make it easier for the government to regulate.

The People’s Bank of China (PBOC) has successfully tested the Digital Currency Electronic Payment (DCEP) – China’s Central Bank Digital Currency (CBDC) – in 12 cities. DCEP is also called Digital Renminbi or the digital Yuan. DCEP runs on a blockchain that is maintained by the PBOC. Other digital currencies and third party blockchain services are banned in China.

In April last year, Macau’s Chief Executive revealed that Macau was going to amend its financial laws to recognize and legalize China’s digital renminbi.