The petro-yuan and the role of gold

PRESIDENT Xi Jinping visited Saudi Arabia last December during the first China-Arab States Summit and the China-Gulf Cooperation Council Summit. The state visit furthered China’s 2018 initiative to shift more trade in oil to the renminbi from the US dollar.

Meanwhile, the US-led sanctions on Russia since the Ukraine war in February 2022 has boosted the already burgeoning Sino-Russian trade, prompting Russia to increase its usage of the renminbi and China’s Cross-Border Interbank Payment System (Cips) for oil trade to bypass the US-dollar-dominated Society for Worldwide Interbank Financial Telecommunication (Swift).

If Saudi Arabia and Russia were to work further with China, the amount of renminbi-denominated oil trades going through the Cips could rise sharply. Countries including Iran, Venezuela and Indonesia are already settling some of their China oil trades in renminbi. The volume and the scope of using renminbi for international payments could grow as more countries diversify out of US dollar risks. This development could challenge the US dollar-based global financial system over time, as the dollar’s global reserve currency status is largely based on its importance in the energy and commodity markets.