Wednesday, July 8, 2015

PBOC Director: Gold Market is Vital to Renminbi Internationalization

A big thank you to a reader for sending this link to a recent slide presentation by YAO Yudong. Mr. Yudong is the Director General for the Research Institute of Finance and Banking at the People's Bank of China (PBOC). You can see some background info on him at the bottom of this post.

The focus of his presentation is China's ongoing efforts to internationalize the Renmenbi/Yuan to boost its use as a global reserve currency. A key point to take from this presentation is the statement by Mr. Yudong that China views gold as "vital to RMB Internationalization".  Everyone is wondering why China has been buying so much gold. Here we have an official with the PBOC providing a direct explanation for at least one reason why China wants the gold. 

Below I have pasted the notes from his slides on how gold and the Shanghai Gold Exchange help in the internationalization process for the RMB/Yuan.


Shanghai Gold Exchange (SGE) international board and RMB internationalization 

Gold market is vital to RMB internationalization 

• Key function of an international currency: invoicing

 Presently, most global commodities (petroleum, natural gas, etc.) are denominated in USD

RMB has the potential to become an invoicing currency for gold 

 China has been the world’s largest gold producer for 8 consecutive years
 China has one of the fastest growing gold consumption in the world
 Shanghai Gold Exchange is the largest exchange-based trading venue for physical gold globally

 SGE international board drives RMB internationalization

1. Promoting the free exchange of RMB in connection with gold investment

 Provides a new investment channel for gold for offshore RMB
 Facilitates the cross-border use of RMB and the two-way opening up of China’s financial market

2. Enhancing RMB’s role in resource allocation

 International board gold is quoted and traded in RMB and is attracting international investors to China’s gold market

 China is exerting an ever greater influence on int’l gold market system, helping the formation of a global, RMB-denominated gold price benchmark, as well as raising gold market’s ability to discover and track gold prices in RMB

 Increasing number of market participants are investing in gold with RMB or exchanging gold for RMB.

Here is some background info on Mr. Yudong from an IMF seminar held in March 2015. Please note that Mr. Yudong was a discussion panelist in the Third Joint Conference by the PBOC and IMF

Even as the BRICS Summit opens up today in Russia, China is clearly still fully engaged at the IMF and is working hard to get IMF inclusion of the Yuan into the SDR currency basket. Increasing the use of the RMB/Yuan as a reserve currency and as a freely usable currency is part of that process.

YAO Yudong, Director General, Research Institute of Finance and Banking, People’s Bank of China
YAO Yudong, Director General, Research Institute of Finance and Banking, People’s Bank of China

  • 1997-2001, University of Cambridge, UK Ph.D. in Economics
  • 1995-1997, University of Cambridge, UK M.S. and Diploma in Economics
  • 1992-1995, Tsinghua University, Beijing, China M.S. in Economics with concentration in econometrics
  • 1988-1992, Southeast University, Nanjing, China B.S. in Mechanical Engineering
  • Jan. 2015-Present, Research Institute of Finance and Banking, People’s Bank of China Director General,
  • Jan. 2012-Dec. 2014, Department of Monetary Policy, People’s Bank of China Deputy Director General,
  • Nov. 2009-Dec. 2011, Department of Monetary Policy II, People’s Bank of China Advisor (Deputy Director General Level)
  • Oct. 2005-Nov. 2009, Department of Commerce and Bureau of Investment Promotion, Heilongjiang Province, China

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