The People's Bank of China (PBOC) Vice Governor Li Ruogu and Macao Monetary Authority (MMA) Chairman Teng Lin Seng signed a memorandum on Wednesday that will allow the special administrative region to launch renminbi business.

The PBOC -- China's central bank -- has also pledged to provide all necessary services to Macao commercial banks approved to provide yuan-denominated services.

The move is aimed to meet the need generated by increasing travel and business exchange between the mainland and Macao, which returned to Chinese control in 1999.

The central bank said it will "provide a clearing channel and mechanism for banks in Macao to conduct personal renminbi business." After consultations with the MMA, it will designate a clearing bank for the purpose.

Macao commercial banks operating yuan business will be allowed to provide deposits, remittances, credit card and exchange services for local residents. They will not be allowed to provide yuan-based loans.

No date for the official launch of yuan-denominated business in Macao was provided.

The central bank addressed at length the implications that the agreement will have on the region's gambling industry, a mainstay of the local economy.

Although mainland residents will be able to use renminbi-based credit cards in Macao when local banks can provide yuan services, these credit cards cannot be used in casinos.

In addition, mainland residents will be permitted to withdraw no more than 6,000 yuan (US$720) when they travel overseas.

The opening of the renminbi business "will not encourage mainland people to gamble in Macao," according to a PBOC statement.

The arrangement between the central bank and the MMA is similar to the one made previously between the mainland and Hong Kong, whose commercial banks started to conduct yuan-denominated business earlier this year.

BOC Hong Kong Holdings, the Bank of China's Hong Kong subsidiary, is the clearing bank for that business. But it remains unclear who will become Macao's clearing bank.

The yuan business will provide an official channel for renminbi banknotes circulating in the region to flow back to the mainland.

The yuan has become increasingly popular in Macao since the handover in 1999. It was used well before 1999 in places like gold shops, said Wan Sin Long, director of the Banking Supervision Department at the Monetary Authority of Macao, but now it is being used everywhere, such as department stores and taxis.

The renminbi is fully convertible under the current account, but only partly convertible under the capital account.

The annual inflow of renminbi banknotes as recorded by conversion into the local currency, the pataca, is estimated at only 2 to 3 billion yuan (US$240 million to 360 million), tiny compared with the figure in Hong Kong. However, the volume is expected to increase as cross-border travel and business exchanges with the mainland grow, Wan said.

Allowing Macao banks to conduct renminbi business will facilitate exchanges, strengthen banking supervision and protect the reputation of the renminbi, Wan said.

Underground money exchange is commonplace in Macao. Bringing this money into official channels will reduce such illegal dealings.

(China Daily August 5, 2004)