Macau has announced that it will be overhauling its digital currency law. The Chinese government's trial of a new digital currency has created a need to update Macau's current laws.
The People's Bank of China launched the Digital Currency Electronic Payment in 2018. DCEP runs on a ledger, similar to a blockchain but maintained centrally by the PBOC. Each DCEP is pegged to the renminbi at a rate of DCEP1.00 to CNY1.00. Colloquially, people know the DCEP as the digital yuan or digital renminbi. The DCEP's can be exchanged for physical renminbi. This is where the DCEP gets its value.
The centralized ledger makes transfers more traceable than cash and gives the PBOC a great deal of oversight on the new currency. This level of control might make the PRC more amenable to Macau using the DCEP. At the moment, people cannot spend RMB directly in Macau. They must convert the Chinese currency into either Macanese patacas or Hong Kong dollars. Since there are limits on moving yuan across the border, this caps the amount any Chinese resident can spend while in the Macanese Special Administrative Region.
The digital yuan has succeeded during trial periods in Shenzhen, Guangdong, Suzhou, Chengdu, Sichuan, and Xiong’on New Area so far. Its successes may see it put into widespread use shortly.
Wherefore digital?
The official reasoning for the DCEP on mainland China was twofold.
Firstly, by replacing a portion of the cash in circulation with digital currency, the central bank can reduce the enormous cost of storage. Digital banking and the pandemic have resulted in most cash returning to banks. The basic cost of securing this physical cash and keeping mildew and silverfish out is beginning to take its toll.
The second and more interesting reason is that the government gives are its concerns about Tencent and Alibaba's duopoly of the money transfer industry. In China, if a shop processes card transactions, it probably uses either Tencent's WeChatPay or Alibaba's AliPay. That's a lot of power for a nominally communist government to give to a pair of corporations.
Backdoor blockchain
China is working with SWIFT to construct a transfer system that would work with the centralized ledger at the People's Bank of China. This system would work internationally. The focus on internationality has given Macau hope that it may be allowed to use the DCEP directly.
Currently, the PRC's control of physical currency fuels the junket industry and stifles Macau's growth. Macau's new legislation will look at making the DCEP available in Macau. If that happens, players won't need to buy Macanese patacas or Hong Kong dollars to play at the gaming tables.
But the legislative review may have a further knock-on effect in the crypto market.
China made ICO's illegal in 2017. They followed up with bans on trading and mining cryptocurrency within its borders. The result is that Macau also banned digital currencies. With the DCEP on the cards, this might open up either or both of Macau and China's governments to the idea of other digital currencies.
When China first cracked down on crypto it hit Bitcoin stock to the tune of 6% overnight. They already seem to be softening a bit. But if the DCEP is the thin end of the wedge for digital currencies, it could be a game-changer for crypto. Bitcoin could become available to another 1.2 billion potential investors in one fell swoop. And plenty of those investors are in the market for a currency that can bypass the surveillance state.
Please HODL for more details as they come in.
Featured image source: Flickr
