Peace2be: Reuters UPDATE 1-China’s big four banks, StanChart, ANZ to join yuan gold benchmark
UPDATE 1-China’s big four banks, StanChart, ANZ to join yuan gold benchmark
(Recasts with confirmation from Shanghai Gold Exchange)
By A. Ananthalakshmi
Top Chinese banks, alongside Standard Chartered and ANZ, will be among 18 members to join a new yuan-denominated gold benchmark that signals China’s biggest step towards becoming a price-setter for the metal.
As the world’s top producer, importer and consumer of gold, China has baulked at having to depend on a dollar price in international transactions, and believes its market weight should entitle it to set the price of gold.
The yuan gold fix, to be launched on April 19, is not expected to pose an immediate threat to the gold pricing dominance of London and New York, but it could ultimately give Asia more power, particularly if the Chinese currency becomes fully convertible.
The Chinese benchmark price will be derived from a 1 kg-contract to be traded by the 18 members on the Shanghai Gold Exchange (SGE), which will act as the central counterparty.
The price-setting process will include China’s big four state-owned banks, Industrial and Commercial Bank of China , Agricultural Bank of China, Bank of China and China Construction Bank, the SGE said in a statement on its website.
Bank of Communications, Shanghai Pudong Development Bank, China Minsheng Banking Corp , Industrial Bank Co, Ping An Bank and Shanghai Bank will also participate.
Bank of China (Hong Kong), retailers Chow Tai Fook and Lao Feng Xiang, Swiss trading house MKS, Chinese miners China National Gold Group and Shandong Gold Group will also be members, SGE said.
The benchmark price, to be quoted in yuan per gram, will be set twice a day based on a few minutes of trading in each session.
The spot benchmark in London, quoted in dollars per ounce, is set via a twice-daily auction on an electronic platform with 12 participants after starting off with six.
The London fix, which was previously set via a teleconference among banks, was replaced by electronic auctions after a shake-up in benchmark setting following a scandal over rigging of the Libor interest rate broke in 2012.
Support from foreign banks will be crucial for the international use of the yuan benchmark, but China had struggled to get them to sign up due to sensitivity around benchmarks amid scrutiny by regulators.
Reuters reported in January that China had warned foreign banks it could curb their operations in the domestic market if they refuse to participate in the benchmark-setting process.
Standard Chartered and ANZ, the two foreign banks participating in the fix, have gold import licences in China. HSBC also has an import licence but was not named by SGE as one of the participating banks. (Additional reporting by Shanghai Newsroom; Editing by Ed Davies)
http://www.reuters.com/article/china-gold-fix-idUSL3N17G2W4
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LA: China Embraces Gold In Advance Of Post-Dollar Era
Tyler Durdan
Submitted by Koos Jansen via AllChinaReview.com,
(EXCERPT) To challenge the US dollar hegemony and increase its power in the global realm of finance, China has a potent gold strategy. Whilst the State Council is preparing itself for the inevitable decay of the current international monetary system, it has firmly embraced gold in its economy. With a staggering pace the government has developed the Chinese domestic gold market, stimulated private gold accumulation and increased its official gold reserves in order to ensure financial stability and support the internationalisation of the renminbi.
“The outbreak of the crisis and its spillover to the entire world reflect the inherent vulnerabilities and systemic risks in the existing international monetary system…. The desirable goal of reforming the international monetary system, therefore, is to create an international reserve currency that is disconnected from individual nations and is able to remain stable in the long run…”
Not surprisingly, China’s strategy is everything but linear. Let us analyse the State Council’s most recent actions with respect to gold and the internationalisation of the renminbi. In addition to gold accumulation, the State Council has aimed to kick start renminbi internationalisation by having it included into the International Monetary Fund’s (IMF) basket of currencies, the Special Drawing Rights (SDR), in 2015.
For acceptance, the IMF required openness of China’s international reserves, of which the PBOC hadn’t updated its gold reserves since 2009. Here we found the PBOC stretched between opposing forces; it obviously preferred to hoard gold in concealment not to disturb financial markets, while at the same time it was requested to open its books.
In July 2015 the PBOC decided to revise its official gold reserves by 604 tonnes to 1,658 tonnes, which was probably not the whole truth but served both means, as markets barely reacted to the increment – the gold price has not increased since then – and the IMF has granted annexation of the renminbi into the SDR.
How much gold does the PBOC truly hold? Before we make an estimate we must first address the question, how and where does the PBOC buy gold? Some analysts assume the PBOC buys gold in the domestic market at the SGE. According to my research this is not true. My sources in the bullion industry tell me first hand that the PBOC buys gold in the international OTC market using Chinese banks as proxies. And this intelligence fits into the wider analysis, as there are many reasons why the PBOC would not buy gold through the SGE.
A rough estimate suggests the PBOC holds nearly 4,000 tonnes in gold reserves, more than twice the amount they officially disclose. In a quest for any clues we must visit the heart of the gold wholesale market.
Data by the London Bullion Market Association points out there have been approximately 1,700 tonnes of monetary gold exported from London between 2011 and 2015. China’s central bank is the foremost suspect for these purchases, given its size and motives, and the tonnage exported from London is consistent with other sources that state the PBOC has bought roughly 500 tonnes a years since 2009. All clues together point to the PBOC holding roughly 4,000 tonnes currently. Although this remains speculation.
More of China’s gold strategy was revealed by the recent launch of the Shanghai International Gold Exchange (SGEI) that offers gold trading in renminbi for clients worldwide, in an attempt by China to strengthen the internationalisation of the renminbi.
In itself the SGEI clearly underlines China’s gold ambitions16, but the punch line was added with the launch of the Silk Road Gold Fund in 201517. Led by the SGE(I), the $16 billion fund will boost the gold industry along the Silk Road and in turn “will facilitate gold purchases for the central banks of member states to increase their holdings of the precious metal”, according to the Chinese state press agency Xinhua18. Not only is China trying to persuade all mining and consumption of gold along the Silk Road economic project to be settled through the SGEI in renminbi, additionally the Chinese promote gold as an essential component of central banks’ international reserves going forward.
We must conclude that the State Council views gold as part of the coming international monetary system.
Why else does it quickly develop the domestic gold market to be embedded in financial markets, surreptitiously accumulate vast gold reserves and establish a framework to boost gold business on the Eurasian continent around the SGEI? In my view, China contributes significant value to its gold strategy in the shadow of the apparent failure of the current fiat monetary system. And if true, China’s central bank having nearly 4,000 tonnes of gold is well on its way to introduce the next phase.
For Full Article Click here: http://www.zerohedge.com/news/2016-04-16/china-embraces-gold-advance-post-dollar-era
