SHANGHAI (Reuters) - China is expected to receive approval from its central bank for a yuan-denominated gold fix “anytime now”, with more details about the scheme potentially set to emerge at a major industry conference this week, sources told Reuters.
The world’s top gold producer and one of the biggest consumers wants to be a price-setter for bullion and is asserting itself at a time when the global dollar-denominated benchmark, the century-old London fix, is under scrutiny for alleged price-manipulation.
If the yuan fix takes off, China could compel buyers in the mainland and foreign suppliers to pay the local price, making the London fix less relevant in the world’s biggest bullion market. However, given the yuan is not fully convertible, the two fixes could exist side by side globally.
The Shanghai Gold Exchange (SGE), on whose international platform the yuan-denominated fix will be launched, submitted details of the fixing process, and rules and regulations for participants, to the People’s Bank of China (PBOC) a few weeks ago, sources familiar with the matter said.
“They may approve it anytime now,” said one of the sources directly involved in the process, who declined to be named because of rules on talking to media.
The SGE and PBOC did not reply to requests for comment.
The source, however, said more details would be announced at the LBMA Bullion Market Forum in Shanghai on Thursday if the PBOC approval comes through before the conference.
Once SGE gets PBOC approval, it will work to sign up Chinese and foreign banks for the fix, with an aim to launch it later this year. Around 15 Chinese banks are expected to participate initially, the source said.
The exchange has held talks with foreign banks regarding the fix but they could be reluctant to participate at a time when U.S. and European regulators are scrutinizing benchmarks across asset classes following the manipulation of the London interbank offered rate, or Libor.
“The PBOC is supportive (of the fix),” said a source at a foreign bullion bank. “SGE’s challenge is to find the participants to be part of the process.”
In a trial run for the fix in April, some foreign banks participated along with many major Chinese banks.
While details of the fix are yet to be revealed, sources say it would be derived from a contract traded on the bourse for a few minutes, with the exchange acting as the central counterparty. That could make the process transparent - addressing one of the big concerns about the London fix.
The yuan fix is the most recent effort by SGE to boost China’s position in the global gold market. The exchange opened an international bourse in September 2014, allowing foreigners to trade yuan-denominated contracts for the first time.
Additional reporting by Koh Gui Qing; Editing by Himani Sarkar