Macau's digital yuan plans deal fresh blow to casino junkets

By Farah Master

HONG KONG (Reuters) - Macau's plans to use China's future digital currency will help Beijing curb money laundering in the world's top gambling hub but could deal a fatal blow to casino junket operators.

These companies, who help lure high rollers to Macau, have been on the ropes since Beijing identified the cross-border flow of funds for gambling as a national security risk last June.

Since then, opaque financing channels used by the online gambling sector and Macau's junket industry have been cut off and tens of thousands of people have been arrested for illicit cross-border gambling.

As Beijing clamped down on illegal money flows, nervous long-time customers rushed to withdraw money from junkets, resulting in liquidity problems. A digital yuan threatens to close remaining avenues the operators could explore to stay in business, industry executives say.

"All these intermediary industries will be faded out or disappear right away, and this is a very likely possible outcome," said Luiz Lam, an investor in the junket industry, of the digital yuan's impact.

Casino executives hope a fully traceable digital yuan will give Beijing greater confidence to allow more visitors to travel to Macau for gambling, likely in amounts an economy with a largely closed capital account is comfortable with.

Deploying e-CNY, as it is often referred to, will enable Beijing to better control money laundering and illegal transactions, said a senior casino executive in Macau who declined to be named as he was not permitted to speak to media.

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

A key risk is that Beijing could put a daily or annual transaction limit, executives said, but the impact could be mitigated if more tourists are allowed to come.

Mainland China visitors account for more than 70% of Macau's tourist arrivals every year.

"It's such a high-level policy no one can really do anything. We just have to follow right and as an operator make sure our systems will be compatible," said another casino executive, who asked not to be named for similar company policy reasons.

The Macau Junket Association could not be immediately reached for comment.

Casino revenues in the special administrative region, the only place in China where gambling is legal, have been in free fall for over a year due to coronavirus restrictions. Revenues are down around 60% from 2019.

Robert Goldstein, chairman of Las Vegas Sands and Macau's Sands China welcomed the e-CNY prospects.

"It may be a very positive thing for the Macau market as it becomes...more integrated into China and more consumer-friendly," he told an analyst call on Thursday.

Operators Wynn Macau, Melco Resorts, Galaxy Entertainment, SJM Holdings and MGM China declined comment.

DIVERSIFICATION

China flagged on Sunday plans to expand digital yuan experiments to more cities after testing it last year in Suzhou, Shenzhen, Chengdu and Xiong'an.

Macau's chief executive Ho Iat Seng told legislators last week that the former Portuguese colony should "follow the pace" of the mainland.

In a statement to Reuters, Macau's Monetary Authority said it was amending its legal framework to incorporate the digital yuan and that it had been in contact with the People's Bank of China over the progress. It would also conduct its own feasibility study.

Macau's government said in an email to Reuters last week it was closely following the foray into digital payments as it develops its own financial sector with a bond market, wealth management and financial leasing.

Over the past year, Macau has facilitated bond sales, trading and settlement services to issuers including Chinese companies and the Chinese finance ministry.

"The digital yuan is important for casinos to control the money flows but it's part of a bigger strategy which involves Macau becoming diversified," said Oriol Caudevilla, a fintech consultant based in Hong Kong.

(Additional reporting by Donny Kwok; Editing by Marius Zaharia and Jacqueline Wong)