The London silver markets continue their transformation and Chinese financial institutions continue to expand their influence as evidenced in a recent announcement. CME Group and Thomson Reuters states that the China Construction Bank is now a participant in the LBMA Silver Price. 1
CCB is first Chinese bank to participate in setting the London silver price fix. The bank joins the CME Benchmark Europe Limited and Thomson Reuters, who assumed responsibility for the process from from the London Silver Market Fixing Limited in the summer of 2014.
William Knottenbelt, Senior Managing Director, International, CME Group, was quoted as stating, “Increasing participation in the auction ensures the relevance and integrity of the benchmark. The addition of one of China’s leading banks, CCB, to the process will be welcomed by other silver market participants.” But is this just another move by China to position themselves as influential in worldwide markets, including precious metals markets?
Proactive Vision or Reactive Response?
The news was positioned as a positive development, bringing more “depth and international insight to the process.” However, many observers remarked on the recent heavy losses some traders suffered in the silver market 2 and how this move may have been influenced by that occurrence.
These industry participants note that the daily price fix for both gold and silver has been a near-sacrosanct benchmark used by all market players to conduct trades and business. The long-enjoyed credibility of this price was challenged in February when London Bullion Market Association Silver price ($13.58) was set a level 3.5 percent below the Comex intraday low. 3
Thomson Reuters put out a statement on this and following discrepancies, indicating the firm was investigating the trading activity that caused the discrepancy. While the FCA and LBMA remained mute on the issue, others were quick to speak up.
Brad Yates of Elemetal Capital LLC stated, “When they endorsed it and it became the official print, the benchmark immediately lost credibility.” Others expressed concerns that the price fix process “is broken,” and a number indicated they were moving to live pricing rather than relying on the London fix. With the investigation continuing, the admittance of CCB at least achieved the purpose of taking the spotlight off the recent problems. This may be another reason for China’s acceptance into the London price fix, in which they now help to set the price of silver.
China’s Growing Influence on World Economy
Another issue to consider is that China has been increasingly persistent in gaining more stake in international affairs, and this is one more move to position the growing economy as a main player on the world stage. Recently, the yuan was approved to be added as an IMF world reserve currency in October 2016, and many Americans fear that a “China takeover” is currently in the works, with China working to challenge the dollar as the dominant world currency.
China’s participation in the London silver price fix is just one more event that serves to empower China and potentially disempower American money. It remains to be seen how much further China decides to compete with the dollar, and how the country’s growing economic power will affect American citizens.
Additional Sources:
1 – http://www.wsj.com/articles/china-construction-bank-becomes-first-chinese-bank-to-help-set-silver-price-1457366991
2 – http://www.ft.com/fastft/2016/01/29/silver-price-fix-diverges-from-spot-price/
3 – http://www.bloomberg.com/news/articles/2016-02-01/silver-investors-faith-in-benchmark-threatened-by-market-misses