China's digital yuan could be a fatal blow for Macau casino junkets

Beijing's bid to better control money laundering and illicit transactions through a fully-traceable central bank digital currency could pose a threat to the country's popular gambling hub Macau. 

A hotspot for tourists — of which 70% come from mainland China — the region's gambling business could reportedly be adversely impacted by China's use of a digital yuan to clamp down on illegal money flows and keep its capital account better sealed. 

Revenues from Macau's casino junkets — the longtime beneficiaries of Macau's position as the only administrative region in China where gambling is legal — had already been squeezed during the coronavirus pandemic. They are down around 60% from 2019, according to Reuters. 

Now, the informal intermediaries and opaque financing channels associated with the online gambling space and Macau's junket industry are being shut down, with tens of thousands of individuals reportedly arrested for illegal cross-border gambling.

Some casino executives fear that Beijing could impose a daily or annual transaction limit — something that would be significantly easier to enforce with a digitized official currency — and further threaten the industry's health. Customers have reportedly responded to increasing pressure from Beijing by hurrying to withdraw their holdings from junkets, sparking liquidity problems. 

Luiz Lam, an investor in the junket industry, said of the tightening measures, "all these intermediary industries will be faded out or disappear right away, and this is a very likely possible outcome.”

Yet others claim that a potentially adverse impact could be mitigated if the administration feels more comfortable with allowing a higher number of tourists to travel to Macau. One industry participant, who wished to remain anonymous, told Reuters:

“If Macau cannot control the environment, China is not going to give us the tourists."

A casino executive, again not named, said that stricter control from the center was "such a high-level policy [that] no one can really do anything. We just have to follow right and as an operator make sure our systems will be compatible.” 

Robert Goldstein, chairman of Las Vegas Sands and Macau’s Sands China said that the changes may in fact “be a very positive thing for the Macau market as it becomes [...] more integrated into China and more consumer-friendly.”

China's digital yuan has already been piloted in multiple regions and cities, including Suzhou, Shenzhen, Chengdu and Xiong’an, and Macau too looks set to implement the digital currency agenda. Chief executive Ho Iat Seng told the region's legislators that Macau should "follow the pace" set by the mainland and the Macau Monetary Authority is reportedly amending its legal framework to accommodate the digital yuan, in cooperation with China's central bank.

Oriol Caudevilla, a Hong Kong-based fintech consultant, has meanwhile argued that while the digital yuan is indeed "important for casinos to control [...] money flows," its introduction should also be seen in a wider strategic context of the increased digitization and diversification of Macau's financial sector.