JP Morgan State China Digital Yuan A Junket Threat In Future

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

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

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

In a Wednesday release, Macau’s casino regulator, the Gaming Inspection and Coordination Bureau, denied it had discussions with gaming operators on the possibility of using a digital version of China’s currency in the casinos of the region, also often referred to as digital renminbi.

Bloomberg had previously stated that such discussions had taken place, citing the source of the data as individuals it did not name, but who were said to be familiar with the matter.

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

But expanding on the possible existential threat to the long-standing junket system in Macau, the institution said “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 teams reply put it differently, explaining the VIP segment of 2019 Macau GGR and casino-operator earnings before interest, taxes, depreciation and amortisation (EBITDA), which accounted for approximately 40 percent and approximately 15percent respectively, and “may no longer exist in a hypothetical world of full e-renminbi migration in Macau.”

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

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

It added that Chinese were permitted to withdraw up to CNY10,000 per day from overseas ATMs subject to a CNY100,000 annual limit while remaining abroad.

“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,”,” JP Morgan said.

The brokerage noted that the digital renminbi would also offer greater visibility, at individual levels, to the Mainland China authorities on gambling activities in Macau.  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”.

According to local media reports recently, citing the Monetary Authority of Macau, if China’s central bank-backed digital yuan were to be used eventually in any commercial or economic context in Macau, there would need to be a shift in the city’s legal structure.