China and Saudi Arabia have signed a local-currency swap agreement worth around US$7 billion , deepening their ties as countries across the Middle East look to shift more of their non-oil trade away from the dollar.
The two countries’ central banks have agreed on a three-year deal for a maximum of 50 billion yuan or 26 billion riyals, according to their separate statements on Monday. China, which has been promoting the yuan’s use in transactions with major energy and commodity exporters, is Saudi Arabia’s biggest trade partner.
The swap arrangement will “help strengthen financial cooperation” and “facilitate more convenient trade and investment” between the two countries, the People’s Bank of China (PBOC) said in a statement. The Saudi central bank made similar comments.
The deal is the latest sign of strengthening relations between Beijing and Riyadh. Though Saudi Arabia has long been one of China’s main suppliers of oil, business ties have expanded in recent years, with Saudi Aramco investing billions of dollars in China’s petrochemicals sector and the kingdom trying to attract Chinese tech companies.
Chinese President Xi Jinping visited Riyadh last year, with the two nations signing agreements-in-principle valued at US$50 billion.
They’re also working more closely on geopolitical issues. In March, China helped broker a rapprochement between Saudi Arabia and Iran. And on Monday, a Middle Eastern delegation led by the Saudi foreign minister travelled to Beijing for talks on deescalating the Israel-Hamas war.
In August, Saudi Arabia was invited into the BRICS grouping of Brazil, Russia, India, China and South Africa. It’s expected to join in January along with five other nations including Iran, the United Arab Emirates and Argentina.
Saudi Arabia is the world’s largest oil exporter and a pillar of a petrodollar system established in the 1970s that relies on pricing crude exports in the US currency. While maintaining a peg to the dollar for decades, it’s now also seeking to strengthen its relations with crucial trade partners including China as part of an effort to diversify the economy away from energy.
At the same time, Saudi officials have consistently played down the idea that the kingdom would start to sell its oil to China or other major importers in currencies other than the dollar.
Apart from Saudi Arabia, major oil producers including the UAE and Iraq are also planning or exploring ways to conduct non-oil trade using currencies other than the dollar.
And as more countries try to reduce their reliance on the US currency, China’s swaps have grown in importance over the past decade.
Global central banks used them to a record degree in the first quarter of this year, indicating the yuan’s growing international prominence and a shift towards settling trade transactions with China in local currencies rather than the dollar.
The outstanding balance of China’s foreign-exchange swap lines rose to a fresh high of 117.1 billion yuan at the end of September, according to the PBOC. The Chinese central bank has 29 active swap agreements, with their combined quota at over four trillion yuan in total, according to its report last month.
Argentina recently said it would leverage a swap line to finance imports from China, responding to financial challenges linked to a selloff in the peso. Brazil has taken similar steps.
- Bloomberg
Created by Tan KW | Dec 01, 2023
Created by Tan KW | Dec 01, 2023
Created by Tan KW | Dec 01, 2023
Created by Tan KW | Dec 01, 2023
Created by Tan KW | Dec 01, 2023