The London Metal Exchange is considering settling and clearing
contracts in yuan, LME Asia md Liz Milan told Metal Bulletin on
Thursday April 19.
As it works towards building its own clearing house, LMEclear,
the exchange has sent questionnaires to its members asking what
they would like to see in terms of functionality, Milan said.
The questionnaire asks members for their views on LME contracts
Trading of contracts in yuan is not under consideration as
there is no international convertibility for the currency,
"If we were to do cleared and settled in just [yuan] and not
traded, that will not be till LMEclear is launched in 2014,"
she told Metal Bulletin.
"The gravity is obviously moving a lot more east now," a
category II member told Metal Bulletin, adding that the move
would allow the LME to get into the Chinese market and make it
easier for the Chinese to trade on the exchange.
The LME clears and settles contracts in yen, euros and sterling
and has no plans to drop any of these currencies, Milan said.
"We would just add [yuan]. There is no question of removing
something to add that," she said.
LME members told Metal Bulletin that as long as the Chinese
continue to relax their policies on the yuan, it will be
beneficial for contracts to be settled and cleared in the local
But a second category II member expressed concern about
settling contracts in yuan as the currency cannot be traded
The only way the non-deliverable currency can be hedged now is
through non-deliverable forwards, which are generally priced in
dollars, he said.
But in recent months, China has taken steps signalling that it
may be ready to allow the yuan to become a global currency.
On April 14, the People's Bank of China said it would widen the
dollar-yuan trading band to 1% from 0.5%.
London is also making efforts to become an offshore trading hub
for the yuan, while HSBC said it plans to issue its first yuan
bonds in London.
The UK treasury and Hong Kong monetary authority have agreed to
provide help with a forum for banks to look at clearing and
settlement systems, market liquidity and the development of new
"We think that the wider circulation of [yuan] in London is a
critical and positive step for the internationalisation of the
Chinese currency. London accounts for 36.7% of the world's
total forex trading," ANZ analysts said in a note to clients.