Industrial and Commercial Bank of China (ICBC), the world’s largest bank in terms of assets, is paying $765 million for a 60% stake in Standard Bank’s commodity and currency trading unit in London, with an option to later increase its holdings to 80%. This purchase gives ICBC established operations in all the world’s major trading hubs.
Mining.com quotes the chairman of ICBC as saying “The large amount of commodities trading and the consequential needs for hedging resulting from the development of the Chinese economy, as well as financial reforms such as the deregulation of interest rates and foreign exchange rates, along with the two-way opening-up of capital markets, have posed new demands for the transformation of the service capabilities and business model of Chinese banks.”
London is already home to the largest yuan bourse outside of China, and is still the largest gold trading hub in the world. This leads to the question of whether ICBC’s next step will be to bid on the seat on the London gold fixing panel that has been put up for sale by Deutsche Bank.
China is both the world’s largest producer of gold, as well as the largest consumer. Gold production by Chinese firms has increased in the last two years by purchases of gold mines and mining companies in Australia, Africa, and Latin America. It would make sense that they would want a voice in setting benchmarks for gold in London. China is already making plans to introduce yuan-denominated gold contracts on the Shanghai Gold Exchange by the middle of the year.
The purchase of Standard Bank’s trading arm isn’t all about commodities, though. The Chinese government has announced plans to make the yuan a “basically convertible” currency by the end of 2015, so it can be included in the Special Drawing Rights basket of currencies. For this to happen, they will need an extensive currency trading infrastructure in foreign markets.