China digital yuan a junket threat in future: JP Morgan

China digital yuan a junket threat in future: JP Morgan

Were Macau – at some stage in the future – to adopt for use there China’s central bank-backed digital yuan for casino-chip transactions, it would “dramatically reduce the need for junkets,” says a Thursday note from JP Morgan Securities (Asia Pacific) Ltd.

It might also potentially cap – in practical terms – the amount of money that a mainland Chinese player could bring per trip to Macau, to CNY50,000 (US$7,648), the brokerage added.

The general threat a digital-currency world posed to Macau’s junkets was because they were “currently facilitating foreign-exchange transfer and providing credits for VIP players” chiefly ones from mainland China, when they come to gamble in Macau, noted analysts DS Kim, Derek Choi and Jeremy An.

Macau’s casino regulator, the Gaming Inspection and Coordination Bureau, denied in a Wednesday statement, it had talks with gaming operators on the possibility of using a digital version of China’s currency – also sometimes referred to as digital renminbi – in the city’s casinos.

Bloomberg had earlier reported there had been such discussions, citing the source of the information as people it did not identify, but that were said to be familiar with the matter.

JP Morgan said that – following the Macau regulator’s denial – “we don’t think investors should make anything of this news, at least for now”. It added that it was “highly unlikely in the foreseeable future” that China’s digital currency would make its way into Macau’s casinos.

But expanding on the potential existential threat to Macau’s long-standing junket system were adoption to come eventually, the institution stated: “Since gamblers would be able to use e-renminbi from his/her e-wallet to purchase chips, casinos wouldn’t have much, if any, reason to pay hefty commissions to junkets – currently approximately 44 percent of VIP gross gaming revenue (GGR).”

The JP Morgan team added: “To put it differently, the VIP segment – which accounted for approximately 40 percent and approximately 15 percent respectively” of 2019 Macau GGR and casino-operator earnings before interest, taxation, depreciation and amortisation (EBITDA) – “may no longer exist in a hypothetical world of full e-renminbi migration in Macau”.

The exception to that digital payment path for casino gambling in Macau would be “non-Chinese players,” said JP Morgan, but it added that market segment was no more than “15 to 20 percent” of the total number of Macau VIP players, in the institution’s view.

The institution noted China only allowed mainland residents to take out of the country up to CNY20,000 per overseas trip, plus foreign currency of up to US$5,000 equivalent.

It added that while staying abroad, Chinese were allowed to withdraw up to CNY10,000 per day from overseas ATMs subject to an annual ceiling of CNY100,000.

“All-in, Chinese can legally bring about CNY30,000 to CNY50,000 per person per Macau trip, assuming an average two to three days per visit,” stated JP Morgan.

The brokerage noted that digital renminbi would also give mainland China authorities “a greater visibility on gambling activities in Macau, on an individual level”. It added: “Stating the obvious, not many (if any) high-rollers would like the idea of ‘possibly being traced’,” by the government, regarding “his/her gambling spends”.

Were China’s central bank-backed digital yuan to be used eventually in some business or economic context in Macau, there would need to be a change in the city’s legal framework, according to local media reports recently, citing the Monetary Authority of Macao.

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