China May Now Be Close To New Gold Benchmark Pricing System
Reports out of China suggest that the currently chairmanless Shanghai Gold Exchange (SGE) is on the verge of announcing a new chief executive in Jiao Jinpu, a senior official from the Chinese Central Bank – the Peoples Bank of China. (The SGE is an arm of the PBoC). The likely appointment of Jiao is seen as the definitive indicator that the SGE is now very close to setting up its much-heralded Yuan gold price benchmarking system to rival that in London and give China more control over gold prices in the future. Whether this will still happen this year, though, is rather less certain despite earlier suggestions that it would. Jiao will have to work fast to achieve this, but undoubtedly the groundwork is already well under way.
But the Chinese have also shown that they don’t hang around in implementing key new economically-oriented entities once the go-ahead decision has been taken and, according to a Reuters report Jiao is seen as a mover and shaker who should be able to move things forward rapidly assuming that the benchmark system process would be high on the agenda.
The SGE has been without a Chairman since the previous incumbent, Xu Luode, was promoted to Executive Vice President of the PBoC – which itself is an indicator of the importance of gold in the central bank’s policies. The Chinese view gold as a vital element in the global economic system and in its generally accepted push to position the Yuan as one of the world’s accepted reserve currencies, and while not necessarily to replace the US dollar as top dog yet it probably does have this longer term ambition and with far faster domestic growth still than is being seen in the Western economies. It would seem to be well on its way to achieving this.
But first it will need a ‘seat at the table’ and the initial goal will be to have the Yuan recognised as a constituent of the US-dominated IMF’s Special Drawing Right ‘currency’ – the revised new make-up of which has now been deferred into the second half of next year. In theory this delay has been seen as creating time to give China’s currency a little more time to meet the necessary criteria to be part of the SDR system, but in practice perhaps another delaying tactic by the US which recognises the potential threat to its global economic dominance.
China does see gold as providing a significant part of the global economic system and would thus like to have a much bigger influence in its pricing. Chinese banks are beginning to be admitted into the new London benchmarking system introduced earlier this year, but probably at a slower rate than the Chinese would like. Even with the Chinese bank participation it is suspicious of the London price setting mechanism as being potentially under the control of the Western bullion banks which it sees as working on behalf of their respective national central banks. A Yuan gold ‘fix’ in Shanghai is reckoned to be a way of influencing the global gold price (probably equally geared towards the interests of the PBoC, although this will be denied.) There are no level playing fields in global economics, and gold is almost certainly no exception in this.
In its article Reuters quoted a reliable Chinese source as commenting: “The exchange [SGE]will continue with the internationalisation of the Chinese gold market. That should not change because it is not just the ex-chairman’s policy but also state policy”. The last sentence perhaps says it all.