Yuan with the world

China Daily (Canada) - - HONG KONG - By CHAI HUA in Hong Kong

grace@chi­nadai­lyhk.com

Hay­wood Che­ung Takhay be­lieves the rise of the main­land gold in­dus­try will act as a spring­board for the in­ter­na­tion­al­iza­tion of the coun­try’s cur­rency, the ren­minbi.

The ren­minbi took a big step to­ward be­com­ing an in­ter­na­tional re­serve cur­rency last year. That was when it was ac­cepted by the In­ter­na­tional Mon­e­tary Fund (IMF) as part of the spe­cial draw­ing right bas­ket of cur­ren­cies, ef­fec­tive from Oc­to­ber this year, noted Che­ung, hon­orary per­ma­nent pres­i­dent of Hong Kong’s Chi­nese Gold and Sil­ver Ex­change So­ci­ety (CGSE) bul­lion plat­form.

The cur­rency needs a plat­form to be­come “ac­tive”, that is, for for­eign coun­tries to use it to buy com­modi­ties, Che­ung said, point­ing out that gold is one of the most pop­u­lar and in­ter­na­tion­al­ized com­modi­ties.

On the one hand, ren­minbi goes out when gold is im­ported from the US, UK and Switzer­land; on the other, it is also in­ter­na­tion­al­ized when for­eign in­sti­tu­tions use the yuan to en­gage in ar­bi­trage ac­tiv­i­ties, he ex­plained.

He added that ren­minbi-de­nom­i­nated gold prod­ucts can open the door for the cur­rency to reach more in­ter­na­tional users, and so in­crease trans­ac­tions and cir­cu­la­tion.

The CGSE in 2011 launched the world’s first off­shore ren­minbi-de­nom­i­nated gold prod­uct — the Ren­minbi Kilo­bar Gold Con­tract.

This, the world’s first off­shore ren­minbi-de­nom­i­nated spot gold con­tract, of­fers in­vestors a chance to spec­u­late on ap­pre­ci­a­tion of the main­land cur­rency while hedg­ing in gold.

In­sti­tu­tional and re­tail in­vestors may set­tle ei­ther through a spot con­tract or phys­i­cal de­liv­ery.

Cur­rently, the prod­uct has achieved an av­er­age daily trad­ing vol­ume of about HK$16 bil­lion to HK$18 bil­lion.

Last July, the CGSE launched the Shang­haiHong Kong Gold Con­nect, al­low­ing the first batch of 30 mem­bers to trade gold on the in­ter­na­tional board of the Shang­hai Gold Ex­change with off­shore ren­minbi.

Che­ung fore­cast that ren­minbi-de­nom­i­nated gold pric­ing power will be­come a dom­i­nant force in Asian and in­ter­na­tional mar­kets, and it will greatly en­hance the stand­ing of the ren­minbi in world­wide forex and fi­nan­cial mar­kets.

But he pointed out that the ren­minbi needs to fluc­tu­ate along a wider trad­ing band to bet­ter im­ple­ment the in­ter­na­tion­al­iza­tion process. “The cost of ar­bi­trage is usu­ally about 1 per­cent, so the ren­minbi needs 3 to 5 per­cent fluc­tu­a­tion,” Che­ung sug­gested.

More­over, larger fluc­tu­a­tions in the ren­minbi would also ben­e­fit the gold in­dus­try be­cause of the yel­low metal’s in­sur­able value, he be­lieves.

He also es­ti­mates that both the gold and ren­minbi mar­kets will be­come more ac­tive in the sec­ond half of this year.

PARKER ZHENG / CHINA DAILY

Hay­wood Che­ung Tak-hay be­lieves Shang­hai and Hong Kong are like the pos­i­tive and neg­a­tive poles of the same mag­net, which can at­tract more traders if the pair works to­gether, while Shen­zhen is in the mid­dle of the mag­net. Hay­wood Che­ung Tak-hay, hon­orary per­ma­nent pres­i­dent, Chi­nese Gold and Sil­ver Ex­change So­ci­ety

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