We would like to ensure that you are still receiving content that you find useful – please confirm that you would like to continue to receive ILO newsletters.
28 January 2021
The use of distributed ledger technology (blockchain) has increased in recent years. Although it could be argued that retail investors have lost interest since the 2017 cryptocurrency bubble, the fact is that, ignoring the price aspect of cryptocurrencies and blockchain technology, this area has continued to grow and create new and better solutions for the future of finance and commerce (as demonstrated by Decentralized Finance's Defi projects). Tech giants such as Microstrategy, Square, Grayscale Investments and Stone Ridge Holdings all bought bitcoin in 2020, diversifying their portfolios (with an aggregate investment of more than $1 billion). Institutional investors are clearly becoming big players in this market, which points to a certain level of maturity for the industry.
Blockchain technology brings new cards to the table. The benefits of an open, traceable, unseizable, uncensorable currency with an unchangeable monetary policy are becoming increasingly attractive. Although the United States and Europe have been struggling with what to make of this growing trend and how they can exercise control over these digital commodities, China has expunged the unnecessary principles which form the basis of public decentralised networks and simply applied the concepts which best serve its specific national interests (ie, centralised, traceable, transparent and seizable) to create a new sovereign digital currency (commonly referred to as a 'central bank digital currency' or 'CBDC').
Currently, electronic retail money represents a claim on an intermediary, rather than functioning as the digital equivalent of cash. CBDCs could provide cash-like certainty for peer-to-peer payments, as well as convenience, resilience, accessibility and ease of use in cross-border payments.
This begs the question of what is the main difference between a CBDC and, for example, bitcoin? Arguably, a CBDC is the equivalent of a fiat currency, whereas bitcoin is equivalent to gold. Ultimately, the main differences reside in centralisation versus decentralisation and the underlying security of each system (CBDCs are centralised, unlike bitcoin which poses a greater security risk).
One example of a CBDC is China's digital yuan, a proposed digital sovereign currency. As a CBDC based on blockchain technology, transparent and public transactions are paramount objectives for the introducion of a digital yuan. This strategic move would also put payment companies in check as it could cut out the middleman and curb money laundering conducted via such services.
A digital yuan would also allow for a more efficient commercial market, as well as a unified marketplace. China is permeable to technological changes – the growth of tech giants and the way in which everyday life has changed over the past 10 years prove this. As such, the digital yuan would likely be rapidly adopted and commerce should thrive with the efficiency underlying this technology.
The COVID-19 pandemic has brought Macau's gaming industry to a screeching halt. In 2020 casinos saw their gross gaming revenue (GGR) fall by 79.3% compared with 2019. Although the reopening of cross-boundary travel restrictions to Chinese nationals has helped and there was reportedly a softer decrease in GGR year-on-year as at December 2020, the situation is still far from resolved.
Previously, VIP patrons were already subject to tight money controls in China but found ways to keep spending money at Macau casinos, particularly through gaming promoters and their associates.
Although the Macau regulator has reported that the potential use of a digital yuan in Macau's casinos is 'fake news', this new form of currency could jeopardise the gaming promotion activity that has underpinned the entire industry since the 1980s. A centralised, trackable and seizable digital currency would provide never-before-seen visibility over clash flows to the city cages. This could singlehandedly cut off the shadow banking and money laundering activities that have plagued economies worldwide.
If the digital yuan was to be used as currency in Macau casinos, this could remove the need to use intermediaries (eg, gaming promoters, money exchange businesses or other gray methods) to exchange renminbi for Hong Kong dollars. It would be one less step outside the government's control, making the activity conducted by these intermediaries a thing of the past. This is confirmed by recent news trends: some gaming promoters and other associated businesses have closed shop, anticipating the increased control over money outflows and transactions that this new form of currency could bring about. The biggest gaming promotion players in the market have already started to assess their options, particularly following the amendment to China's criminal law that will enter into force on 1 March 2021, criminalising cross-border casinos which organise or solicit Chinese nationals to bet overseas.
Concerns over privacy and limits on betting power will undoubtedly deter a lot of the high rollers from coming to Macau. However, a developing trend is the emergence of a cashless society. Smartphones and payment apps have contributed to this trend and it is already harder to use cash than cashless payment methods in China. This, allied with the circumstances brought about by the pandemic, could bolster the use of a CBDC in Macau's casinos or in many other industries. It would certainly contribute to a more sanitary, immediate and direct user experience.
In a cashless society, tight monetary policies would likely be used as a better form of control, which would give unprecedented insight into consumer patterns in all industries, prevent money laundering and shadow banking institutions and better protect the people and uphold the law.
These new principles may disrupt the traditional gaming industry in Macau, with mass market gamers replacing VIPs once and for all. If this transition is too swift, it will give rise to concerns for all parties involved. However, in the long term, it might allow Macau's market to be included in a single currency jurisdiction with mainland China (or, at least, with the Greater Bay Area), diversifying Macau's economy beyond the gaming industry (which has been a longtime dream of the region and, particularly, the central government).
China's ultimate goal is the full integration of its special administrative regions. The Macau gaming industry must adapt to and prepare for this new reality, which can be included, or at least considered, as part of the criteria in the upcoming international tender for the concession of games of fortune and chance in casinos. However, this tender seems unlikely to take place before June 2022 given the recent speeches by the chief executive and the secretary for economy and finance.
For further information on this topic please contact Pedro Cortés or Luís Machado at Rato, Ling, Lei & Cortés Advogados by telephone (+853 2856 2322) or email (firstname.lastname@example.org or email@example.com). The Rato, Ling, Lei & Cortés Advogados website can be accessed at www.lektou.com.
The materials contained on this website are for general information purposes only and are subject to the disclaimer.
ILO is a premium online legal update service for major companies and law firms worldwide. In-house corporate counsel and other users of legal services, as well as law firm partners, qualify for a free subscription.