Foreign exchange trading is always akin to gambling. But, in China, gambling may be a way of trading foreign exchange: one way to get around the country’s currency controls is to take a trip to the casinos of Macau.
Macau is not just about currency conversion: it has made some efforts to diversify into Vegas-style shows. But, when the chips are down, it is only the gaming tables that investors are interested in, in the hope of insights into China’s flows of money.
China’s currency is rapidly becoming globally important. Figures yesterday showed the renminbi again passing the euro as the second currency for trade finance, although the dollar still dominates with 80 per cent of lending. China is also on a slow boat to fully liberalised exchange rates.
Macau’s gambling moves closely with the size of China’s $3.6tn of currency reserves. Both can be seen as ways to recycle foreign investment, with the central bank mopping up inflows and buying dollars, while individuals take excess domestic liquidity and gamble it. How much of the gambling is a pleasurable side-effect of the spare cash in the economy, and how much is a deliberate effort to acquire hard currency is unknown. But it does not really matter: the scale of gambling offers a guide to moves in FX reserves.
In summer last year, both were frozen as investors fell out of love with China. No more. The latest Chinese figures show reserves jumped 3.1 per cent in September, the fastest since the spring of 2011 – the last time investors were certain the world economy was finally recovering from crisis. Macau suggests money is still flowing into China, as year-on-year gambling revenues jumped more than a fifth in November.
It is impossible to say what will happen to the renminbi if and when it is liberalised. But, right now, investors’ desire for risk would be pushing the currency up much more if it were not for growing reserves, and the gamblers in Macau.