Vantage | Why Saudi is trading American dollars for Chinese Yuan

Saudi Arabia is deepening ties with China. On Monday, they signed a deal. To trade in their native currencies, and sideline the dollar. The deal is worth almost seven billion dollars. It is valid for three years. This is a currency swap agreement, a financial contract between the central banks of China and Saudi Arabia. Henceforth, China’s central bank will maintain a reserve of the Saudi riyal, and the Saudi central bank will keep China’s yuan. So, when a payment needs to be made, these banks will just use the native currencies.

The Saudis will settle bills in yuan, and the Chinese will use the riyal. So, it’s a win-win for them. So who’s the loser? The US dollar. This is another attempt at de-dollarisation, and China has been pushing for this. China is Saudi Arabia’s biggest trade partner, mainly due to oil purchases. Now this pact is mostly about the non-oil trade. But, it is a step towards de-dollarization. It sets a precedent for regional players, like the UAE and Iraq. These are major oil producers, they’re exploring ways to conduct non-oil trade without using the dollar. And the yuan might appeal to them. China has been busy promoting the yuan. Before the deal with Saudi Arabia, China had 29 swap agreements. The list includes key West Asian powers like Qatar and Egypt. And now Saudi Arabia is the latest one to join. Just another step in the deepening relationship between Riyadh and Beijing. In March, Saudi Arabia normalised ties with Iran. It was a pact brokered by China. In August, the BRICS decided to expand. Again, Beijing pushed for Saudi inclusion. And this week, Saudi Arabia’s foreign minister visited Beijing. Seeking China’s support to de-escalate the Gaza war. Plus, they have booming bilateral trade. Mostly thanks to China’s large crude orders. Last year, China paid 65 billion dollars to Saudi Arabia. This was just for crude purchases. It made up about 83 per cent of the kingdom’s exports to China. However, they are thinking beyond crude oil. The Crown Prince wants to diversify Saudi Arabia’s economy. To end the dependence on oil revenues. And China could help Mohammed bin Salman realise this vision. Last year, Xi Jinping visited Riyadh. Several agreements were signed. They were valued at 50 billion dollars. And more deals were announced this year. Also, Riyadh hosted a major event. It was Arab-China business summit, as many as 30 agreements were inked which spread across sectors like technology, renewables, agriculture, real estate, mining, tourism, and healthcare. Now we have a yuan-riyal swap agreement. It could become the vehicle to enable these investments. So, instead of a sudden shift, they’re slowly removing the dollar out of their relationship. The American currency might be the present for Riyadh, but the Chinese yuan could be its future. Views expressed in the above piece are personal and solely those of the author. They do not necessarily reflect Firstpost_’s views._ Read all the  Latest News ,  Trending News ,  Cricket News ,  Bollywood News , India News  and  Entertainment News  here. Follow us on  Facebook,  Twitter and  Instagram.