The planned introduction by China of an official, government-backed digital yuan by 2024 shapes as a broad positive for Macau’s casino industry and could prove particularly beneficial for the high margin mass and premium mass segments.
According to a lengthy research note published by brokerage Sanford C Bernstein on Friday, China’s Digital RMB – developed in conjunction with the People’s Bank of China – has the potential to be a game-changer for Macau by overhauling entire payment systems, reducing reliance on payment apps such as WeChatPay and Alipay and potentially even replacing the pataca as Macau’s main currency.
While all eyes will be on how tightly China maintains capital controls upon its launch across the mainland, the potential for Digital RMB to become legal tender in Macau potentially opens the door for easier access to money by mainland customers inside Macau’s casinos. Macau currently accepts two currencies – the Macau pataca and Hong Kong dollar – as legal tender, with HKD the widely used currency on casino floors.
“If the RMB were to become legal tender in Macau, then the path is opened to usage of Digital RMB as well,” a team of six Bernstein analysts state in the report.
“In the context of casinos, this would mean for example being able to buy chips for play directly from the casino cage (or even a table) instantly using (digital) RMB without the need to convert into HKD.
“The elimination of the need for currency conversion from the key Macau customer group (mainland Chinese) would be advantageous as it would simplify the process and not subject customers to f/x transaction costs.
“Digital RMB would allow greater government scrutiny and control over money flows. But it would also allow easier money transfer [and] eliminate the need to use intermediaries (like junkets, underground banks or pawnshops).
“Mass and premium mass play could surely benefit due to ease of money flow.”
Key to such a scenario becoming reality would be China easing its famously tight capital controls, which is not a completely outlandish possibility.
“China intends to continue down the path of internationalization in order to create a stable monetary environment for the country’s economic development,” the research note states. “One of the key aspects of internationalization would need to be the elimination (or severe reduction) of capital controls.”
If it were to happen, and even more so should Macau eventually adopt the RMB as its own currency, the impact on Macau’s casino industry would be dramatic and potentially spell the end of junkets as they are currently known.
“A major reason for using junkets – an ability to move RMB out of China into Macau – becomes largely unnecessary,” Bernstein states.
“While junkets could still play a credit and marketing role, the need for junket intermediaries would be significantly curtailed and most casino operators would shift to more direct customer relationships via premium mass and premium direct, as has already been the trend for years.”
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