MPs suggest that Macau should improve its local legislation to enable the implementation of the use of digital currencies in the long term. A new bill entitled ‘Legal regime of creation and issuance of money’ has clarified the concept, but representatives of associations in the area say the region’s financial infrastructure is not adapted to the demands of the sector
In order to keep up with current trends in the digital economy and the development of the modern financial industry, the Macau government has submitted a bill that would make it possible to include digital currencies as legal tender, in addition to traditional coins and notes.
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The bill entitled “Legal regime of monetary creation and issuance” was approved by the Macau Legislative Assembly (LA) in late October and submitted to the 2nd Standing Committee for further discussion.
During his presentation, the Secretary for Economy and Finance, Lei Wai Nong, said that this legislation will make the currency issuance system in Macau a more comprehensive structure, and the introduction of digital currencies will facilitate the future integration of the development of the digital economy.
However, he points out that there is no date yet for its implementation. It will be introduced only after full consideration of all relevant support structures.
The secretary also did not fail to point out that it will be a centralized digital currency, issued by a central bank and different from the general concept of current cryptocurrencies, which are characterized by their decentralization and are unauthorized under the legislation of the MSAR.
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The digital yuan, or e-CNY, issued by the People’s Bank of China, is a clear example of a centralized digital currency.
In 2014, the Central Bank of China set up a study group to explore this model, implementing e-CNY on a trial basis in some provinces and cities in mainland China in 2020.
According to the Central Bank, the digital yuan has been tested in 15 provinces and cities in mainland China through August 2022, with more than 5.6 million merchants using the currency and a cumulative number of transactions reaching 360 million, representing a total value of 100.4 billion RMB (equivalent to $13.86 billion).
During the experimentation phase, the Macau government repeatedly expressed its intention to have a similar digital currency in the future as well.
In the three years since the pandemic began, the volume of electronic payments in Macau has grown considerably.
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The local government has been collaborating with the financial industry to launch a “bundled payment” service, a local payment tool that will offer a better user experience to the public and allow merchants not to need to operate multiple payment terminals.
With these conditions, local authorities hope to create a favorable environment for the future implementation of the Central Bank’s digital currency in Macau.
RIGOR AND LONG TERM
Lo Choi In, banker and AL MP, believes that Macau society has already reached a consensus on the need for the development of a modern financial industry.
“With electronic payments in the city evolving rapidly, the overall trend seems to include digital currency and improving the city’s financial infrastructure, also improving [Macau’s] business environment,” she tells PLATAFORMA.
In the second quarter of 2022 there were 68.57 million transactions recorded on mobile payment terminals, with a cumulative value of approximately MOP6.4 billion, according to the Macau Monetary Authority.
The figures for these three months exceed those recorded for the whole of 2020, where there were 65.49 million transactions with a cumulative value of MOP6.33 billion.
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The MP therefore shows her support for the bill, pointing out that in addition to specifying the concept of digital currency at the legal level, the government should introduce future “more detailed and stringent” regulations, as digital currencies influence not only the welfare of the population, but cross-border financial management, international trade with Chinese currency, commercial settlement, and financial and national security.
“The [Chinese] Central Bank leads the world in terms of digital currency technology, while Macau has made the financial technology industry one of its strategic priorities,” it notes.
“Therefore, at the legal level, we need to accelerate the implementation of regulations on digital currencies and make long-term pla- nos on the issuance of e-CNY and patacas in their digital form, so that Macau can build the necessary foundation and become an offshore financial center of the Chinese currency and produce more opportunities to internationalize CNY.”
IMPACT ON GAMBLING
In his analysis of the impact of the digital yuan on the gambling industry, Zhou Jin Quan, assistant professor at the Macau Polytechnic Institute’s Pedagogical and Scientific Center in the Areas of Gambling and Tourism, points out that one of the important functions of digital currencies are their tracking, openness and transparency.
Likewise, the use of e-CNY in Macau may involve monitoring the personal or corporate bank accounts of regular gamblers, reducing their desire to gamble and reducing the risk of money laundering in casinos and other establishments, he points out in his study ‘The Impact of e-CNY on the Gaming Industry in Macau’, published in 2020.
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“The digitalization of Chinese currency is a challenge for the future development of the gaming industry in Macau, its success will depend on the optimization of the industry itself in order to respond to changes in the external economic, technological and social environments,” it explains in the article.
The draft law put forward by the government points out that to implement the use of e-CNY, Macau needs to coordinate with mainland China its international exchange and capital control systems, seeking to improve its current “Financial System Legal Regime,” and study the possibility of digitalization of the pataca, with the main objective of interacting with the e-CNY and digital Hong Kong dollar.
At the same time, the government has also proposed an amendment to the “Legal Regime of the Financial System” to replace the current legislative system in place for 30 years.
FOUNDATION STILL TO BE BUILT
Yu Wai Hang, secretary-general of the Macau Innovation and Development Study Association, believes that the local community already has a basic understanding of digital currencies, and is not opposed to the simultaneous use of digital currencies and cash, but warns that the current financial infrastructure in Macau cannot yet meet the demand.
According to Yu, banks’ internal systems urgently need to be revamped, and infrastructure needs to be rebuilt to be able to handle the potential risks related to data, information, and regulations that the use of digital technology entails.
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In an article published by mainland Chinese media last month, the secretary-general suggests that Macau use China’s experience as a benchmark for launching its digital currency in the future.
“We should set up a small pilot project, initially based on data accumulation, with secure storage and use of relevant data, which will later move to a broader area and level of application, and continuously improve our ability to manage this data,” he says.
Certain controls could also be implemented to transactions and portfolios of these currencies, with limits set on the flow of capital, including digital currency deposits.
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“Even before the technology is fully mature, we may explore the possibility of allowing only central banks and large financial institutions to use cross-border payments with these currencies, thus ensuring greater regulation over transactions and general mechanism of digital currencies,” Yu points out.
The representative also warns that it is important to enrich the possibility of using these currencies and that the government should proactively work with various financial institutions and explore all possible usage scenarios.
“We should not only focus on relevant uses in Macau, but also take into account the Greater Bay Area and even the Portuguese-speaking countries community.”
