CHINA, the world’s largest gold consumer and producer, is considering allowing the use of offshore yuan in gold trading in the Shanghai free trade zone.

    The Shanghai Gold Exchange, the country’s biggest physical bourse for the metal, is proposing to let holders of offshore yuan accounts trade the three contracts it will offer, including bullion of 99.99 percent purity, according to a draft of the plan. It stipulates that gold may be physically delivered into a warehouse in the zone.

    China started a free trade zone in Shanghai this year as a testing ground for liberalizing interest rates and currency usage. The gold contracts will expand the range of investment options for yuan deposits around the world, which reached at least 1.5 trillion yuan (US$240 billion) in March, according to Standard Chartered Plc. estimates as of last month.

    The Shanghai Gold Exchange wants to establish an international gold trading platform as part of the liberalization of China’s gold markets and to attract foreign institutional and private investors, according to the proposal.

    The exchange is meeting with banks including Australia & New Zealand Banking Group Ltd. and Standard Bank Plc. to obtain feedback on the plan, according to sources familiar with the situation.

    Australia & New Zealand Banking Group is keen to explore cooperation in the Shanghai free trade zone gold market and sees the development of a new exchange as being “a great opportunity” to entice foreign investment to China’s physical gold market, said Stephen Ries, the Melbourne-based head of media relations at the bank.

    The People’s Bank of China has recommended that financial institutions in the zone be allowed to trade on exchanges in Shanghai, without suggesting a time frame for the change. The central bank removed a cap on foreign currency deposit rates in the area from March 1.

    (SD-Agencies)