Expect This to Be One of the Big Trends Next Year

It hasn’t been a great year for many, and this includes Macau.

The old Portuguese colony is one of the top destinations for gambling tourism. Macau generated US$29 billion dollars last year, way more than Las Vegas.

But gambling also makes up about half of their economy.

Since the pandemic, Macau says they’ve lost US$27 billion in revenue this year so far from the travel restrictions. But what’s interesting is that the industry doesn’t see the pandemic as the biggest threat to their business.

Instead, what they are bracing for is China moving to a digital yuan.

Bloomberg reported recently some casinos have been approached by the regulator to discuss the possibility of using the digital yuan to buy casino chips. While the regulator denies the claim, it looks like the industry is already starting to brace for this.

From Bloomberg:

Though no formal plans have been announced, some junkets — businesses that act as middlemen for Chinese high rollers who make up half the city’s gambling revenue — are exiting the industry or shifting resources elsewhere. They’re saying that the imposition of a traceable, government-linked currency will be the death knell for an industry already hobbled by the virus’s impact and stricter rules around high-stakes gambling over the past few years…

Junkets are worried that with the digital yuan they’ll lose out on two fronts. On one hand, Chinese high rollers wouldn’t need to exchange yuan into Hong Kong dollars cutting them as middlemen. And then, that it would deter many from coming to Macau at all since China would be able to see the cash flows.

I mean, there are plenty of casinos around, it’s likely gamblers would just move on.

But the reason why I bring this up is not at all in defence of the gambling industry. In fact, I’m not much of a gambler.

My point is that you can start to see how central bank digital currencies will affect your privacy and your freedoms.

China has been moving at gigantic steps in this area.

As I wrote recently, they gave away 10 million yuan through a lottery to trial it. You can read more on that here.

And then this week they held another ‘lottery’. JD.com, China’s largest retailer, has announced they’ll start accepting digital yuan. And to test it they’ll be sending thousands of lottery winners ‘red packets’ containing up to 200 yuan in winnings for a total of 20 million yuan (about $4 million) to spend on JD.com.

They’ve also signed a deal with UnionPay, the largest card payment organisation in the world — bigger than Visa or Mastercard — to pilot payment scenarios for the digital yuan.

China is definitely leading the way here, but other central banks are following fast.

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CBDCs are nothing like bitcoin

All in all, 80% of central banks around the world are already looking at how to make central bank digital currencies (CBDCs) possible.

To be clear, CBDCs are nothing like bitcoin, which is decentralised. Instead, central bank digital currencies would be controlled by their respective central banks.

They tell us CBDCs have plenty of perks…they’ll make payments easier; they have less costs, allow for financial inclusion, it’s a way for central banks to fight against cryptocurrencies and of course, it would make for more effective monetary policy.

CBDCs would give more power to central banks, more control over the economy and even the ability to compete against commercial banks, because CBDCs would allow people to hold accounts directly with the central banks.

It would allow for central banks to bypass commercial banks and gain some control over how money is lent.

To me, the negatives outweigh the positives.

We are at the end of the line here with interest rates at 0.10%. CBDCs would make it easier to impose negative rates, something that’s hard to do now when there’s still cash around. To be fair, central banks have said that they will allow cash to run alongside CBDCs but we could see a sort of exchange rate between them.

And of course, digital always makes it easier to impose restrictions on where and how you spend your cash.

Not to mention privacy. I mean, where you spend your money says a lot about you. Why do you think Facebook is so keen on getting Libra (or now Diem) up and running?

But point is, the system is changing. Get ready for a more centralised economy. And the move could push assets outside the financial system, things like gold and bitcoin, higher.

I expect this to be one of the biggest stories next year, one that I’ll keep following.


Selva Freigedo Signature

Selva Freigedo,
For The Rum Rebellion

Selva Freigedo is a research analyst for The Rum Rebellion.

Born in Argentina, her passion for economic analysis started at a young age. Her father was an economist for the Argentinean governments and the family used to discuss politics and economics at the dinner table.

Argentina is a country with an unusual economic history. Growing up there gave Selva first-hand experience on different economic phenomena such as hyperinflation, devaluation and debt default.

Selva has also lived in Brazil, Spain and the USA.

Back in 2000 she was living in the US as the dot com bubble popped…
And in 2008 she was in Spain as the property market exploded and then collapsed…

She has seen first-hand what happens when bubbles burst.

Selva joined Fat Tail Investment Research’s team in 2016, as an analyst. She now writes from her vantage point in Australia, where she settled in 2015.

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