- China’s rising share in the gold market has pressured the FCA to explore tokenized gold to maintain the UK’s dominance in the bullion trade.
The United Kingdom’s Financial Conduct Authority (FCA) is currently discussing a regulatory framework for tokenized gold. The talks include big banks and stakeholders in the bullion trade.
FCA Explores Tokenized Gold
According to the Financial Times, the FCA aims to encourage the digitization of financial markets. At the same time, it seeks to safeguard the UK’s dominance in the global bullion trade.
Citing people familiar with the plans, the source claimed that the regulator’s engagement about the proposed framework is still in its early stages. The financial watchdog is reportedly threatened by China’s rising market share in gold and precious metal markets.
The FCA’s design involves creating tradable digital tokens using blockchain technology. Each unit represents ownership rights in physical gold kept in the vaults of regulated custodians.
The ongoing conversation specifically focuses on how tokenized gold could be used as collateral in wholesale markets. The FCA expects to announce the matter to invite broader public consultation in the next few months.
The UK’s Lead in the Global Gold Market
Since the 19th century, the London over-the-counter (OTC) market has successfully maintained its historical lead in the gold trade. Fast-forward to the present, the World Gold Council estimates that it clears approximately 70% of global trading volume.
Data from the council indicates that London trades 400 ounces of “Good Delivery” bars held in secure vaults under the London Bullion Market Association (LBMA) umbrella. It processed a daily notional gold volume of roughly $58.18 billion in the Loco London Market governed by the same organization per 2021 averages.
The Commodity Exchange Inc. (COMEX), fully owned by the CME Group in the US, trailed Loco London behind with a daily volume of $41.93 billion. Meanwhile, both the Shanghai Futures Exchange (SHFE) and Shanghai Gold Exchange (SGE) were still far from catching up with COMEX, with volumes of $10.94 billion and $3.57 billion, respectively.
However, the gold market’s gradual shift in China’s favor over the following years has pressured the FCA to explore innovative ways to maintain its supremacy in the sector.
Tokenized Gold Market
Above-ground gold has a market cap of around $30 trillion. It comes from a global supply of nearly 220,000 tonnes, based on CoinMarketCap’s tally.
On the other hand, their on-chain digital representations have an overall value of more than $5 billion, per CoinGecko, accounting for a lion’s share of the $8 billion market for tokenized commodities.
