Chinese bank joins LBMA silver fix

In a sign of China's further influence in global financial markets, a major Chinese bank has been allowed into an elite club of bankers that sets the global price of silver.

On Sunday it was announced that China Construction Bank Corp (CCB) will become the first Chinese bank to participate in determining the London Bullion Market Association (LBMA) silver price.

CME Benchmark Europe Limited and Thomson Reuters have operated the LBMA silver price since August 2014, when they took over responsibility from London Silver Market Fixing Limited. CCB will be the first Chinese bank and the sixth price participant, joining HSBC Bank USA NA, JPMorgan Chase Bank, The Bank of Nova Scotia, The Toronto Dominion Bank and UBS AG.

The move is significant because it gives China the power to influence bids that go into setting the official London silver price, thus boosting the importance of the Chinese yuan, or renminbi.

"CCB is delighted to be the first Chinese Bank to become a participant in the Silver Price auction process in London. This further builds on our combined efforts to boost RMB liquidity and products in Europe," said Gu Yu, general manager of CCB's Financial Markets Department.

The development follows a MoU signed in October 2015 with CCB, which stated CCB would support CME Group's plans to offer Offshore Chinese Renminbi (CNH) futures contracts with physical delivery in London for the first time, with CCB acting as designated clearing bank of RMB in London. Under the MoU, CCB agreed to participate in the LBMA Silver Price, as administered by CME Benchmark Europe Limited, as well as to facilitate the trading of CME Group products for CCB's customers in China.

Last November the yuan was declared an official reserve currency, putting it on par with other powerful global currencies such as the US dollar, the euro and the Japanese yen.

China's entry into the silver fix, which went electronic in 2014 after operating for 117 years as a telephone-based system, comes after recent concerns that the silver fix is losing credibility among investors. At least 10 times in the last six months, from Feb. 1, 2016, the silver benchmark has settled outside the same day’s spot trading range. Analysts see the price discrepancies as a sign that banks are becoming unwilling to adjust orders due to compliance fears.

Image by Armin Kübelbeck, CC-BY-SA, Wikimedia Commons