LME Considers Settling Metals Contracts in RMB Yuan

LME considers settling metals contracts in RMB Yuan

According to a newspaper report last week the London Metals Exchange (LME) is now considering allowing members to settle their contracts in Chinese Renminbi (Yuan).

In a survey of its members asked if they would like to include the Renminbi among its current list of other currencies for the settling and clearing of trades, and if dropping the GBP (Sterling) would be problematic.

The LME, founded in Y 1877, is the largest exchange in the World for non-ferrous metals and its contracts have long served as a Global benchmark for the metals industry.

The news paper article states that, “the LME’s benchmark contracts for delivery in 3 months were designed to mirror the length of time needed to reach British ports for shipments of Copper from Chile and Tin from Malaysia.”

Since its founding, the LME’s important Copper contract was denominated in Sterling, until the “Black Wednesday” currency crisis in Y 1993, which made George Soros famous for shorting Sterling. Since then, LME contracts for Copper, Zinc and Aluminum have been denominated in USD's, with settlement options in EUR, GBP and Yen.

Dropping Sterling for the settlement of LME metals futures contracts would be, according to the article, “a final blow to Sterling’s role in metals trading.”

The use of sterling in the settlement of contracts has been gradually decreasing, with one LME broker stating he had not  “traded a contract in Sterling for 5 yrs.”

On 16 April, the People’s Bank of China allowed for 1% moves from a daily fixing, after having kept the limit at 0.5% since May of Y 2007. While this may not be significant in and of itself to the LME situation, the move will further Internationalize the use of the Renminbi.

The LME for its part is probably seeking to accommodate the Chinese companies currently operating on the exchange, with the Bank of China having formally applied to become the exchange’s first Chinese member early in April.

China also accounts for over 40% of Global demand for most metals, potentially making it the LME’s biggest client. But, according to the news paper article, the Renminbi “would need to become more freely tradable before it could be used for LME trading and settlement.”

This action is part of the beginning of the Renminbi as a reserve currency, and the end of the USD’s domination globally IMO, time will tell. Stay tuned...