China opens first offshore gold vault and contracts in Hong Kong
The launch serves a number of purposes, from broadening the Shanghai exchange's international reach to strengthening China's clout in commodity and currency markets and Hong Kong's status as a financial centre.
Trading will be conducted in yuan and settled by cash or physical delivery, including to the new vault operated by Bank of China's Hong Kong unit, the SGE said on Wednesday (Jun 25). The two contracts covering different purity levels will debut on Thursday. To attract traders, the exchange said it will waive fees at the vault till the end of the year.
As the world's top producer and consumer of gold, China wants to wield greater influence in pricing the commodity. The denomination of the SGE's new contracts is particularly important given Beijing's ambition to reduce reliance on the US dollar and promote wider use of the yuan in international trade.
The SGE was established in 2002 by the People's Bank of China as the country's primary platform for trading bullion. In 2014, it set up the International Board to allow foreigners to participate directly in China's market. That effort is now accelerating for other commodities. The Shanghai Futures Exchange, the country's top venue for trading raw materials, recently unveiled a proposal to enhance access to overseas investors.
Although the SGE is the single largest exchange for physical gold, London remains the market's undisputed centre. Other hubs, including Singapore, are also trying to wrest some of the action away from the centuries-old UK market. Interest has only grown after the precious metal staged a massive rally to record levels, with prices more than doubling since the turn of the decade.
Much of gold's appeal is its reputation as a reliable store of value, and China's central bank has been a major buyer over the past three years, in part to diversify reserves away from the US dollar.
Hong Kong, meanwhile, is a well-established banking centre that's seeking to keep pace with the expansion of other financial hubs in the region. The former British colony has a plan to bolster its presence in commodities, from warehousing to trading and logistical services across markets, including bullion. BLOOMBERG
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