Saudi Arabia is considering pricing its oil sales to China in Chinese renminbi (RMB) or the yuan in a move aimed at taming the influence of the dollar in global financial system as Washington’s economic sanctions on Moscow send fears to holders of the greenback.
This comes six years after the International Monetary Fund included the yuan in its Special Drawing Rights (SDR) basket, signalling a vote of confidence by the fund in the yuan and increasing adoption of the Chinese currency in the international financial system.
The yuan’s inclusion in the IMF’s basket of reserve currencies on October 1, 2016, marked a milestone for the Chinese government’s campaign for recognition as a global economic power.
The yuan joined the dollar, the euro, the yen and pound in the IMF’s SDR basket, which determines currencies that countries receive as part of IMF loans.
According to the IMF, the yuan’s inclusion marked a milestone in the integration of the Chinese economy into the global financial system. IMF’s determination that the yuan is freely usable reflects China’s expanding role in global trade and substantial increase in the international use and trade of the yuan.
“We expect that inclusion of the RMB in the SDR basket will further support the already increasing use and trading of the RMB internationally,” said the IMF.
According to China Africa Research Initiative of the Johns Hopkins School of Advanced International Studies, Chinese foreign direct investments (FDIs) to Africa surged to $4.2 billion in 2020 from $75 million in 2003 and peaked in 2008 at $5.5 billion because of the purchase of 20 percent of the shares in Standard Bank of South Africa by the Industrial and Commercial Bank of China.
Chinese FDI flows to Africa have exceeded those from the US since 2013 as US FDI flows to the continent have been generally declining since 2010.
The report lists the top five African destinations of Chinese FDI in 2020 as Kenya, Democratic Republic of Congo, South Africa, Ethiopia and Nigeria.
According to the Wall Street Journal, talks on acceptance of the yuan instead of dollars for Chinese oil sales have accelerated between Riyadh and Beijing as Saudi Arabia’s unhappiness with Washington grows.
According to Aleksandar Tomic, an economist, professor and associate dean at Boston College the effectiveness of the West’s sanctions against Russia has been a wake-up call for countries seeking to reduce their reliance on the US, while other regimes worry that they could be next should they cross Washington.
If it succeeds, the move could dent the dollar’s dominance of the global petroleum market and mark another shift by the top crude exporter towards Asia.
The Wall Street Journal claims the Saudis are angry over the US’s lack of support for their intervention in the Yemen civil war and over the Biden administration’s attempts to strike a deal with Iran over its nuclear programme.
According to US Energy Information Administration Brent crude oil spot prices averaged $97 per barrel in February, an $11 per barrel increase from January and closed at almost $124 per barrel in the first week of March as the further invasion of Ukraine by Russia and subsequent sanctions on Russia and other actions created significant market uncertainties about the potential for oil supply disruptions.
On March 24, Brent prices declined by 0.48 percent to $121.02, a barrel. They last rose above $100 per barrel in late 2014.