China, the world’s largest bullion consumer and producer, is considering allowing the use of offshore yuan in gold trading in the Shanghai free-trade zone.
The Shanghai Gold Exchange, the country’s biggest physical bourse for the metal, is proposing to let holders of offshore yuan accounts trade the three contracts it will offer, including bullion of 99.99 percent purity, according to a draft of the plan obtained by Bloomberg News. It stipulates that gold may be physically delivered into a warehouse in the zone. Gu Wenshuo, a spokesman at the Shanghai Gold Exchange, wasn’t available for comment when contacted by phone, text message and e-mail.
China started a free-trade zone in Shanghai this year as a testing ground for liberalizing interest rates and currency usage. The gold contracts will expand the range of investment options for yuan deposits around the world, which reached at least 1.5 trillion yuan ($240 billion) in March, according to Standard Chartered Plc estimates as of last month.
“While it’s convenient for a foreign entity to use offshore yuan to trade in the zone, it’s the ability to deliver onshore that matters,” Wallace Ng, a Shanghai-based trader at Gemsha Metals Co., said in an interview today. “It’s good that they’re trying to open the market to more people but it’s still limited for physical traders in terms of the import quotas.”
Gold imports in China are controlled through a quota system administered by the central bank. HSBC Holdings Plc and Australia & New Zealand Banking Group Ltd. last year became the first foreign banks to be granted licenses by the People’s Bank of China to bring bullion into the country, according to the World Gold Council.
SGE wants to establish an international gold trading platform as part of the liberalization of China’s gold markets and to attract foreign institutional and private investors, according to the proposal.
The exchange is meeting with banks including ANZ and Standard Bank Group Ltd. to obtain feedback on the plan, according to people who asked not to be identified because the information is confidential.
ANZ is keen to explore cooperation in the Shanghai Free Trade Zone gold market and sees the development of a new exchange as being “a great opportunity” to entice foreign investment to China’s physical gold market, Stephen Ries, the Melbourne-based head of media relations at the bank, said in an e-mail May 30. He declined to comment on further developments when contacted June 3. Standard Bank doesn’t comment on “market speculation,” Erik Larsen, a Johannesburg-based spokesman, said in a May 30 e-mail.
The PBOC has recommended that financial institutions in the zone be allowed to trade on exchanges in Shanghai, without suggesting a time frame for the change. The bank removed a cap on foreign-currency deposit rates in the area from March 1.