Saudi Arabia’s Oil-For-Yuan Bid Won’t Threaten the Dollar – The Washington Post

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Saudi Arabia’s Oil-For-Yuan Bid Won’t Threaten the Dollar

Analysis by David Fickling | Bloomberg

March 18, 2022 at 1:10 a.m. EDT

Is there a situation more absurd than two of the world’s most dollar-dependent economies promising to free themselves from the exorbitant burden of the dollar?
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Let’s set aside, for the moment, the fact that there is no sign of the yuan reaching the status of even the Swiss Franc as a medium of exchange, let alone the mighty greenback. Dollars were used for 88% of foreign exchange transactions in 2019, compared to just 4.3% for the yuan:

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A circumspect government that doesn’t think it can count on friendly relations with Washington in perpetuity might be wise to diversify its foreign holdings into a currency that’s less under the thumb of the Federal Reserve.

Here’s the thing, though: Such a currency already exists, and it’s called the U.S. dollar.

The greenback’s centrality to trade finance isn’t due to any enthusiasm for U.S. financial regulation, and it’s not grounded on issuance of dollars by American banks regulated by the Fed, either. Quite the opposite — the bedrock of the international financial system is not so much the U.S. dollar as the eurodollar, the rather obscure market in short-term loans and bonds issued by banks outside the U.S. but denominated in dollars.

The eurodollar market owes its origins to precisely the sort of wariness about the U.S. order that Saudi Arabia, Russia and China are showing now. It evolved in the years after World War II so that Communist countries could store their dollar deposits in European banks where they wouldn’t fear their assets might be frozen by the U.S. government. It’s since become a behemoth, with $13.42 trillion in credit outstanding last September, compared to about $4.26 trillion in euro-denominated offshore funding and $412 billion in yen. It’s not an exaggeration to say that international trade and finance would crumble overnight if it failed.
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The growth of dollar swap lines to backstop the eurodollar since the 2007 financial crisis and the growing willingness of the U.S. to wield secondary sanctions on a global basis have certainly increased Washington’s oversight of this market — but at bottom it remains largely unregulated.

That goes a long way to explaining why the dollar remains so dominant in cross-border transactions. If you don’t want foreign governments meddling with your overseas assets, the eurodollar is about as close as you can get, short of selling your crude in Bitcoin. Even in China itself, investors seem to prefer greenbacks: The value of overseas debt denominated in dollars held by Chinese-based banks jumped $474 billion in the five years through last September, compared to a $127 billion increase in yuan-denominated securities.

If Saudi Arabia doesn’t want a foreign sovereign to control its overseas assets, switching more of its trading into yuan is about the worst way to go about it. China’s closed capital account means that just switching in and out of renminbi requires permission from the government. Add to that the sweeping asset forfeiture rules incorporated into Beijing’s anti-sanctions law introduced last year, and you’d be naive to think that China was any more secure a place for Riyadh to store its wealth in the long term.

https://www.washingtonpost.com/business/energy/saudi-arabias-oil-for-yuan-bid-wont-threaten-the-dollar/2022/03/16/ecf69bc0-a57c-11ec-8628-3da4fa8f8714_story.html

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Most of Saudi Arabia’s assets and reserves are in dollars including more than $120 billion of U.S. Treasuries that Riyadh holds, and the Saudi riyal, like other Gulf currencies, is pegged to the dollar.

https://www.reuters.com/world/saudi-arabia-gathers-chinas-xi-with-arab-leaders-new-era-ties-2022-12-09/

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China’s Xi calls for oil trade in yuan at Gulf summit in Riyadh

By Maha El Dahan and Aziz El Yaakoubi

RIYADH, Dec 9 (Reuters) – President Xi Jinping told Gulf Arab leaders on Friday that China would work to buy oil and gas in yuan, a move that would support Beijing’s goal to establish its currency internationally and weaken the U.S. dollar’s grip on world trade.

Xi was speaking in Saudi Arabia where Crown Prince Mohammed bin Salman hosted two “milestone” Arab summits with the Chinese leader which showcased the powerful prince’s regional heft as he courts partnerships beyond close historic ties with the West.

Top oil exporter Saudi Arabia and economic giant China both sent strong messages during Xi’s visit on “non-interference” at a time when Riyadh’s relationship with Washington has been tested over human rights, energy policy and Russia.

Any move by Saudi Arabia to ditch the dollar in its oil trade would be a seismic political move, which Riyadh had previously threatened in the face of possible U.S. legislation exposing OPEC members to antitrust lawsuits.

China’s growing influence in the Gulf has unnerved the United States. Deepening economic ties were touted during Xi’s visit, where he was greeted with pomp and ceremony and on Friday met with Gulf states and attended a wider summit with leaders of Arab League countries spanning the Gulf, Levant and Africa.

At the start of Friday’s talks, Prince Mohammed heralded a “historic new phase of relations with China”, a sharp contrast with the awkward U.S.-Saudi meetings five months ago when President Joe Biden attended a smaller Arab summit in Riyadh.
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Beijing has been lobbying for use of its yuan currency in trade instead of the U.S. dollar.

A Saudi source, speaking before Xi’s visit, told Reuters that a decision to sell small amounts of oil in yuan to China could make sense in order to pay Chinese imports directly, but “it is not yet the right time”.

Most of Saudi Arabia’s assets and reserves are in dollars including more than $120 billion of U.S. Treasuries that Riyadh holds, and the Saudi riyal, like other Gulf currencies, is pegged to the dollar.

https://www.reuters.com/world/saudi-arabia-gathers-chinas-xi-with-arab-leaders-new-era-ties-2022-12-09/

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